Buying shares in the best businesses can build meaningful wealth for you and your family. 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 333% 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. In more good news, the share price has risen 0.3% in thirty days.
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. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last 5 years Xero saw its revenue grow at 33% per year. That's well above most pre-profit companies. Arguably, this is well and truly reflected in the strong share price gain of 34%(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 how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Xero in this interactive graph of future profit estimates.
A Different Perspective
It's good to see that Xero has rewarded shareholders with a total shareholder return of 48% in the last twelve months. That gain is better than the annual TSR over five years, which is 34%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that Xero is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.