The Xero Limited (ASX: XRO) share price has made strong gains since its debut on the ASX in 2012.
The cloud accounting platform provider had a minuscule market capitalisation of NZ$55 million (A$51.49 million) when it was listed on the New Zealand stock exchange (NZX) through an initial public offering (IPO) on 5 June 2007.
The IPO raised $15 million from various investors, notably falling short of its $18 million target. Xero shares were valued at a price of NZ$1 each (A$0.94).
However, when Xero dual-listed on the ASX on 8 November 2012, its value accelerated to almost $450 million.
In February 2018, Xero decided to transition to a sole listing on the ASX, leaving behind the NZX. At that time, the company's market capitalisation had soared to about $4.5 billion.
At today's valuation, Xero is now worth more than $14.9 billion.
Below, we take a look at the power of long-term investing. We will calculate how much you would have made if you invested $5,000 in Xero shares a decade ago.
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What was the Xero share price in 2012?
If you had invested $5,000 in Xero shares in 2012, you would have bought them for about $4.48 apiece. This would have given you approximately 1,116 shares, without topping up along the way.
Fast-forward to today and the current Xero share price is $100.06. This means that those 1,116 shares would be worth an astonishing $111,666.96 (1,116 shares x $100.06). When looking at percentage terms, this implies a gain of about 2,230%.
If you are wondering about dividends, the company has chosen not to pay a percentage of its profits to date. Instead, it has reinvested in the business, which seems to have paid off for shareholders.
How has Xero compared against the ASX 200?
On average, the ASX 200 has returned 5.31% to shareholders in the past decade.
The most significant gain was achieved in 2019 when the index grew 23.02%. On the other hand, the biggest fall came in 2011, down 10.84%. You might be thinking that 2020 would be on the list, but during that year, the ASX 200 rebounded sharply.
The Xero share price has historically outperformed the ASX 200 by a long shot. In the past 10 years, the company has delivered a yearly average return of 36.43% since 2012.
Should you invest $5,000 in Xero shares right now?
Two brokers have rated Xero at different share price points in the past month.
The first was Macquarie, whose analysts raised their rating of Xero shares from underperform to neutral. However, they slashed their 12-month price target by 23% to $100 per share, which is in line with Xero's price today.
Following suit, the team at Citi also lowered its outlook by 17% to $132.60. It appears the broker believes Xero shares are undervalued at their current price. If they're right, that's a potential upside of 32.5% over the next 12 months.
The Xero share price is up 3.3% today to $100.12.
