Xero is one of the ASX 200 shares that could be a good idea to consider.
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S&P/ASX 200 Index (ASX: XJO) shares could be the place to find opportunities that are market leaders and continuing to grow in size and strength.
The two businesses mentioned below are companies that are growing globally in multiple countries. They are both growing organically as well as with acquisitions.
Here are two that might be ideas:
Sonic Healthcare Ltd (ASX: SHL)
Sonic is one of the largest healthcare businesses on the ASX. It has operations in a number of different countries like USA, Germany, Australia, the UK, Ireland, Switzerland and New Zealand.
The company has experienced a high volume of COVID-19 PCR and serology tests in laboratories. This led to a significant revenue and earnings contribution, leveraging existing infrastructure. That’s how FY21 half-year revenue went up 33% and net profit increased 166%.
Management believe that the business has good geographical diversification, providing increased opportunities for expansion. Underlying strong healthcare growth drivers are unchanged according to the company.
The ASX 200 has been looking for growth opportunities. For example, it recently acquired Canberra Imaging Group which has annual revenue of around $60 million. This will increase the size of Sonic’s imaging division in Australia, broadening its footprint, adding more capable staff to its workface and increasing revenue of the division by around 10%. There is also the potential opportunity for synergy benefits. The settlement is expected in the first quarter of FY22.
Commsec’s forecast numbers suggest the Sonic Healthcare share price is valued at 23x FY22’s estimated earnings.
Xero Limited (ASX: XRO)
Xero is one of the largest ASX 200 tech shares.
It has a global subscriber base of small and medium businesses across the world. The largest markets are Australia, the UK, New Zealand and the US. Other countries are also seeing growth such as South Africa and Singapore.
The business has a very high gross profit margin. In the FY21 result it saw a gross margin improvement from 85.2% to 86%. This means that a lot of the new revenue can fall to the next profit line.
But the company isn’t making tons of profit yet because it’s heavily pursuing growth.
FY21 saw a 20% increase in subscriber growth, which contributed to a 17% rise in annualised monthly recurring revenue to $963.6 million. The ASX 200 share explains that growing awareness among small businesses of the benefit of digital tools and cloud technologies contributed to lower churn and a 38% increase in total lifetime value to $7.65 billion.
As Xero said, it “will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.”
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.