Are these 2 strong ASX 200 shares buy rated?

Xero is one of the ASX 200 shares that are liked.

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S&P/ASX 200 Index (ASX: XJO) shares are usually some of the biggest and strongest businesses in their respective sectors.

COVID-19 has been a disruptive time for plenty of companies, but some have managed to take advantage of changes in customer demand.

With some pandemic impacts now subsiding, are the below businesses worth buying?

Xero Limited (ASX: XRO)

Xero is a world leader when it comes to cloud accounting software.

It is currently rated as a buy by the broker Citi, with a price target of $160 on the tech company. Whilst the broker used the competitor Sage (from the UK) as a barometer for the ASX share, Xero itself is reporting good growth.

Less than two weeks ago, Xero reported its HY22 full year result. It said that its UK revenue increased by 24% to $132.8 million with 65,000 net subscriber additions, taking the total to 785,000.

There were various other regions that saw a high level of net subscriber additions for the ASX 200 share. Australia saw 124,000 net subscriber additions, to reach 1.24 million subscribers. Total subscribers grew 23% to 3 million, with net subscriber additions rising 62% to 272,000 for the half.

The segment that saw the fastest growth was the ‘rest of the world’, which includes growth regions like South Africa and Singapore, which saw revenue increase by 72% to $45.9 million, helped by the acquisition of Planday.

Xero continues to invest heavily for growth, which is why the HY22 free cashflow fell by 88% to $6.35 million. However, the gross profit margin increased by a further 1.4 percentage points to 87.1%.

Management are preferring to re-invest cash generated to drive long-term growth and shareholder value.

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi is one of the leading electronics and home appliance retailers in Australia and New Zealand.

It is currently rated as a buy by the broker Credit Suisse, with a price target of $55.86. That implies the broker believes the share price could go up by more than 10% over the following 12 months.

The broker thought JB Hi-Fi’s first quarter sales were very good considering how many of its stores were closed during the lockdowns.

As a reminder, the ASX 200 share said that compared to FY21, the sales in the first quarter of FY22 for JB Hi-Fi Australia and The Good Guys were only down by 7.5% and 5.6% respectively. Compared to FY20, those sales were actually up 17.3% and 23.6% respectively.

In October, JB Hi-Fi said its sales momentum was continuing and was benefiting from the re-opening of stores in NSW and changes to the timing of key product releases. Management are feeling confident as the company enters the important Christmas trading period.

Based on Credit Suisse’s numbers, the JB Hi-Fi share price is valued at 14x FY22’s estimated earnings with a projected grossed-up dividend yield of 6.8%.

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 over 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 January 13th 2022

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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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