Xero is one of the high-quality ASX shares to consider.
The post 2 very high quality ASX shares to own appeared first on The Motley Fool Australia. –
There are some high-quality ASX shares that may be worth owning for the long-term.
Quality investments may be able to provide better growth potential or more reliability over time.
There are a number of factors to consider with businesses, including their market share, profit margins and ongoing growth.
Here are two to consider:
Xero Limited (ASX: XRO)
Xero is one of the world leaders when it comes to cloud accounting software. Its customer base is focused on small and medium businesses. It has built a very impressive market share in its home market of New Zealand, yet the growth isn’t really slowing – in FY21 New Zealand subscribers grew by 14% to 446,000.
Indeed, the ASX share is growing strongly in multiple countries. During FY21, Australian subscribers jumped 22% to 1.12 million, UK subscribers surged 17% to 720,000, North American subscribers grew 18% to 285,000 and the rest of the world subscribers increased 40% to 175,000.
Xero actually has a very high gross profit margin, one of the highest on the ASX. The gross profit margin was 86% in FY21, an increase from 85.2% in FY20. Despite the business’ preference for a high-growth strategy, involving lots of investing, it’s experiencing a high level of free cashflow growth. FY21 free cashflow rose 110% to $57 million.
The ASX share may already have some revenue growth baked in for FY22 and beyond. Whilst FY21 operating revenue was $849 million, its annualised monthly recurring revenue was $964 million (up 17%) and its total lifetime value of subscribers increased 38% to $7.65 billion.
Despite the huge amount of growth it has already achieved, Xero is still targeting growth long-term growth. It says:
Xero 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.
Betashares Nasdaq 100 ETF (ASX: NDQ)
This is an exchange-traded fund (ETF) which is all about giving investors exposure to 100 businesses on the NASDAQ, which is a stock exchange in North America.
It just so happens that most of the North American tech giants have chosen to list on the NASDAQ.
So, when you look at the ASX share’s top holdings, it’s full of names like Apple, Microsoft, Amazon, Alphabet, Facebook and Nvidia.
But there’s more to the ETF than just those few tech giants. There are plenty of industry leaders including Tesla, Adobe, PayPal, Netflix, Costco, Moderna, Advanced Micro Devices, Intuitive Surgical, Booking, MercadoLibre, ASML, Regeneron, Zoom, Autodesk and Docusign.
Having such a high-quality group of businesses gives this ETF the potential to perform well over time.
Whilst past performance is not reliable indicator of future performance, it shows how well the ETF has done in the past. Including the 0.48% per annum management fee, it has delivered an average return per annum of 27.9% over the last five years.
Many of the businesses in this portfolio are the ones that are releasing new products and services. This means, as a group, they may be capturing market share, opening up new earnings streams and hopefully achieving rising profit margins.
Should you invest $1,000 in Xero right now?
Before you consider Xero, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Xero wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
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 BETANASDAQ ETF UNITS and Xero. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.