Key points
- The share prices of Australian Ethical and Xero have fallen heavily in 2022 so far
- Australian Ethical's share price has dropped 34% in just a few weeks. It's seeing FUM growth and ongoing tailwinds
- The Xero share price has fallen 23% since the start of the year. It's experiencing growing subscriber numbers and an increase in revenue per user
The ASX share market has seen some of the high-flying growth names come under heavy selling pressure this year.
Could these sold-off stocks now be attractive opportunities? It is rare for a business to fall by more than 20% in just a few weeks. But that's exactly what has happened to these two names which may now be worth a look:
Xero Limited (ASX: XRO)
Xero is one of the world leaders when it comes to cloud accounting services for small and medium businesses across the world.
It has a significant presence in some of the markets that it has been operating in for a while such as New Zealand, Australia and the UK. It also has global growth aspirations, particularly in other countries like Canada, Singapore and South Africa.
The Xero share price has dropped by 23% since the start of the year. In other words, almost a quarter of the market capitalisation has been lost in just a few weeks.
Some brokers see plenty of potential upside for Xero. Brokers like Citi and Morgan Stanley both rate the ASX share as a buy. Citi's price target for the company is $160, more than 40% higher than where it is today, whilst Morgan Stanley's price target is $137, over 20% higher than where it is today. But those price targets were before this recent volatility.
Xero is expected to continue to grow at a solid pace over the next few years. The brokers noted that in the first half of FY22, the number of subscribers increased by 23% to 3 million. The average revenue per user (ARPU) increased by 5% to $31.32. Annualised monthly recurring revenue (AMRR) jumped 29% to $1.13 billion.
The company has stated many times over the years that it will keep focusing on re-investing the cash flow it generates to create long-term shareholder value.
Australian Ethical Investment Limited (ASX: AEF)
Australian Ethical is a fund manager that manages investments for people in a way that matches their ethics.
It invests in areas like education, energy efficiency, electricity transmission and distribution, healthcare, food production, future-focused commodities, property, recycling and waste management, telecommunications and transportation.
The Australian Ethical share price has fallen by 34% since the start of the year.
It continues to see quarter-on-quarter growth of its funds under management (FUM) thanks to the ongoing net flows as more people give the fund manager money to manage.
The ASX share said that for the three months to 31 December 2021, its FUM rose by 6% to $6.94 billion. This was helped by a total of $310 million of net inflows. For the six months to 31 December 2021, net inflows amounted to $600 million.
Underlying net profit after tax is also expected to increase to a range of between $5 million to $5.5 million. This represents a mid-point increase of 8% compared to the six months ending 31 December 2020.
Australian Ethical said that it will continue to invest in its high growth strategy considering the positive momentum it's experiencing and the "scale of the opportunity ahead".
