For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Xero Limited (ASX:XRO) share price has soared 699% over five years. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 3.9%.
It really delights us to see such great share price performance for investors.
While Xero made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
For the last half decade, Xero can boast revenue growth at a rate of 27% per year. That's well above most pre-profit companies. Arguably, this is well and truly reflected in the strong share price gain of 52%(per year) over the same period. Despite the strong run, top performers like Xero have been known to go on winning for decades. On the face of it, this looks lke a good opportunity, although we note sentiment seems very positive already.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
We're pleased to report that Xero shareholders have received a total shareholder return of 52% over one year. That gain is better than the annual TSR over five years, which is 52%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Xero better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Xero (of which 1 is potentially serious!) you should know about.
Xero is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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This article by Simply Wall St is general in nature. 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.
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