Was Xero Limited’s (ASX:XRO) Earnings Growth Better Than The Industry’s?

Examining Xero Limited’s (ASX:XRO) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess XRO’s latest performance announced on 30 September 2017 and weigh these figures against its longer term trend and industry movements. See our latest analysis for Xero

Commentary On XRO’s Past Performance

I look at data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method enables me to analyze many different companies on a similar basis, using the most relevant data points. For Xero, its most recent trailing-twelve-month earnings is -NZ$46.22M, which, against the previous year’s level, has become less negative. Since these figures may be relatively short-term thinking, I’ve calculated an annualized five-year value for XRO’s net income, which stands at -NZ$43.91M. This shows that, Xero has historically performed better than recently, while it seems like earnings are now heading back towards a more favorable position once more.

ASX:XRO Income Statement May 10th 18
ASX:XRO Income Statement May 10th 18
We can further analyze Xero’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Xero’s top-line has risen by 42.77% on average, implying that the company is in a high-growth period with expenses shooting ahead of revenues, leading to annual losses. Inspecting growth from a sector-level, the Australian software industry has been growing its average earnings by double-digit 13.93% in the previous year, and 15.93% over the previous five years. This means despite the fact that Xero is presently running a loss, it may have benefited from industry tailwinds, moving earnings in the right direction.

What does this mean?

Xero’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to envisage what will occur going forward, and when. The most useful step is to examine company-specific issues Xero may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research Xero to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for XRO’s future growth? Take a look at our free research report of analyst consensus for XRO’s outlook.
  2. Financial Health: Is XRO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2017. This may not be consistent with full year annual report figures.