We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Xero Limited (ASX:XRO) share price is up a whopping 616% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. We note the stock price is up 8.1% in the last seven days.
We love happy stories like this one. The company should be really proud of that performance!
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 31% per year. That's well above most pre-profit companies. Arguably, this is well and truly reflected in the strong share price gain of 48%(per year) over the same period. Despite the strong run, top performers like Xero have been known to go on winning for decades. So we'd recommend you take a closer look at this one, but keep in mind the market seems optimistic.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Xero will earn in the future (free profit forecasts).
A Different Perspective
We're pleased to report that Xero shareholders have received a total shareholder return of 58% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 48% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Xero (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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