The Xero Ltd (ASX:XRO) share price has increased 30.3% since the start of 2024. The Washington H Soul Pattinson & Company Ltd (ASX:SOL) share price is 9.6% off its 52-week low.
XRO share price in focus
Xero was founded in 2006 in Wellington, New Zealand, by Rod Drury, who led the company until 2018. Employing more than 3,000 people, Xero helps millions of subscribers manage their accounting and tax obligations across the globe.
The cloud-based “beautiful accounting software” developed by Xero is primarily for accountants and bookkeepers to better service their small business customers.
Through Xero, small business owners and their advisors/accountants have access to real-time financial data and on any device. Xero provides its core cloud accounting software to customers in New Zealand, Australia, the UK and, to a lesser extent, the USA.
SOL shares
Founded in 1903, Washington H. Soul Pattinson (WHSP) is an investment company with a diversified portfolio of assets across a range of industries and asset classes.
Some of SOL’s largest holdings include stakes in other well-known publicly listed companies such as TPG Telecom (ASX: TPG), New Hope Group (ASX: NHC) and a cross-shareholding in Brickworks (ASX: BKW).
SOL’s mission is to deliver superior returns to its shareholders by creating capital growth and steadily increasing dividends as a holding company. It’s the second-oldest publicly listed company on the ASX and has a strong track record of capital growth and dividends. In fact, it’s never missed a dividend payment since listing in 1903! It should be thought of as a family-run LIC, for the benefit of all shareholders (who are deeply aligned).
XRO share price valuation
As a growth company, one way to put a broad estimate on the XRO share price could be to compare its price-to-sales multiple over time. Currently, Xero Ltd shares have a price-sales ratio of 14.34x, compared to its 5-year average of 18.65x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased, or both. In the case of XRO, revenue has been growing over the last 3 years. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
Since it is a more of a ‘blue chip’ company, we could look at the dividend yield of SOL to determine its value. SOL is offering a trailing dividend yield of around 2.81%, which compares to its 5-year average of 2.44%.The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the SOL share price.”)
