Where Xero Limited (ASX:XRO) Stands In Terms Of Earnings Growth Against Its Industry

In this article, I will take a look at Xero Limited’s (ASX:XRO) most recent earnings update (30 September 2017) and compare these latest figures against its performance over the past few years, along with how the rest of XRO’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. Check out our latest analysis for Xero

Did XRO beat its long-term earnings growth trend and its industry?

For the most up-to-date info, I use 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 examine different companies on a more comparable basis, using the latest information. For Xero, its most recent bottom-line (trailing twelve month) is -NZ$46.2M, which, against the previous year’s level, has become less negative. Since these figures may be fairly nearsighted, I’ve created an annualized five-year figure for Xero’s earnings, which stands at -NZ$42.6M. This suggests that, Xero has historically performed better than recently, though it seems like earnings are now heading back in the right direction again.

ASX:XRO Income Statement Feb 4th 18
ASX:XRO Income Statement Feb 4th 18
We can further examine Xero’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Xero’s top-line has risen by 42.57% on average, indicating that the company is in a high-growth phase with expenses racing ahead revenues, leading to annual losses. Viewing growth from a sector-level, the Australian software industry has been growing its average earnings by double-digit 15.33% in the prior year, and 15.63% over the past five. This means that, even though Xero is presently unprofitable, it may have gained 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 forecast what will occur going forward, and when. The most valuable step is to assess 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.