If EPS Growth Is Important To You, Xero (ASX:XRO) Presents An Opportunity

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Xero (ASX:XRO), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

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How Fast Is Xero Growing Its Earnings Per Share?

In the last three years Xero's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Xero's EPS has risen over the last 12 months, growing from NZ$1.15 to NZ$1.38. That's a 19% gain; respectable growth in the broader scheme of things.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that Xero's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Xero shareholders can take confidence from the fact that EBIT margins are up from 15% to 17%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

View our latest analysis for Xero

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Xero?

Are Xero Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The first bit of good news is that no Xero insiders reported share sales in the last twelve months. But the important part is that Independent Non-Executive Director Brian McAndrews spent NZ$356k buying stock, at an average price of NZ$178. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

Along with the insider buying, another encouraging sign for Xero is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth NZ$1.2b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Xero's CEO, Sukhinder Cassidy, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Xero, with market caps over NZ$14b, is about NZ$6.5m.

The CEO of Xero only received NZ$2.1m in total compensation for the year ending March 2025. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does Xero Deserve A Spot On Your Watchlist?

One positive for Xero is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That should do plenty in prompting budding investors to undertake a bit more research - or even adding the company to their watchlists. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Xero's ROE with industry peers (and the market at large).

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Xero, you'll probably love this curated collection of companies in AU that have an attractive valuation alongside insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.