Long-term shareholders of Xero Limited (ASX: XRO) have every reason to smile.
According to Google Finance, the stock has grown a phenomenal 3,000% since listing on the ASX almost 10 years ago.
Even over the last 5 years, Xero shares have exploded 738%.
But 2021 was an anti-climactic year for investors in the New Zealand cloud accounting software provider.
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Valuation and market anxiety brought down Xero shares
Over the last calendar year, the Xero share price was down 3.66% to close at $141.44.
That's despite the S&P/ASX All Technology Index (ASX: XTX) rising 3.72% over the same period.
In some ways, Xero's a victim of its own success and popularity. The Motley Fool analyst Chris Copley said in a November video that the nose-bleed valuation had simply become too much to bear.
"There's a lot of lofty expectations built into the share price that investors should be wary of when investing in Xero."
Combine that with 2021's biggest obsessions — persistent inflation and rising interest rates — and it's a wonder the Xero share price didn't fall further over the year.
Still good prospects in the long run
Despite the underperformance in 2021, both Copley and Medallion Financial managing director Michael Wayne told The Motley Fool that holding Xero shares for the long term could still bear fruit.
"We are drawn to the capital-light and scalable software-as-a-service attributes of the business," said Wayne.
"We continue to be encouraged by the sticky nature of the product."
Copley said it would be unreasonable to expect the next 5 years would bring the same returns as the last 5. But the Xero share price would still be a "market beater".
"It'll continue to grow for a long period of time. Its tail is long, which means I think it can get double-digit growth for a long period of time," he said.
"You really do need to look well long-term into the future for this one because even in 3 to 5 years it's still going to probably have quite a lofty multiple."
To buy in, Wayne would wait until there is a dip during the coming year.
"We feel it best to be patient as the share price is prone to volatility," he said.
"All else remaining equal, we would look at buying around the $110 to $115 level."
Copley, a former accountant, remembered how much Xero helped make small business owners' lives easier.
"I used to train different clients on how to use some of these accounting platforms, and Xero was by far my favourite solution."
