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Is the sale of XERO FPO shares by management a cause for concern?

XERO FPO (ASX: XRO) announced today that its Chief Operating and Financial Officer, Sankar Narayan, has sold 30,000 Xero shares at current market prices (at an average of $29.45 per share).

The company said the purpose of the sale was to meet personal tax liabilities in relation to Xero shares granted to Mr Narayan as part of his remuneration package.

I like to own shares in companies where senior management hold a significant financial interest so as to align my long-term interests with theirs. As such, you might be wondering, is this a cause for concern?

My view is that there isn’t much to worry about for the following reasons:

  • Mr Narayan retains an interest in 42,874 Xero shares (which are valued at over $1.2m at current prices). In addition to this he has 46,902 Restricted Stock Units and 291,000 options. The CEO and founder Rod Drury also retains a significant stake in the business.
  • It’s not unusual for executives to sell off some shares to pay off their tax bills particularly when a large portion of their remuneration package was granted in shares.
  •  Xero’s long-term prospects have not changed in my view and the company is still growing quite phenomenally. Its H1 FY 18 results showed revenue was up 37% compared to H1 FY 17 and the lifetime value per subscriber had increased by 15%. As the company continues to reinvest its earnings in the business and expands overseas, I think it will get to break even sooner rather than later.

Overall, I don’t think there is any reason to panic and if I owned Xero shares I would hold them. I would also prefer to own shares in Xero compared to its rival Myob Group Ltd (ASX: MYO).

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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