How did Xero shares do in the 2022 financial year?

The Kiwi software maker has been a favourite among investors over the past 5 years. But how has it done recently as the tech sector is punished?

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New Zealand software maker Xero Limited (ASX: XRO) has made plenty of investors wealthy during its lifetime.

The company originally listed on the NZX, but over its almost 10-year life on the ASX, the stock has gained an impressive 1,636%, according to Google Finance.

But 2022 has seen the party come to an abrupt pause.

Unfortunately, Xero shareholders have watched in horror as their shares made a 44% loss over the 2022 financial year.

In fact, Xero shares plunged 14% just in the final month.


Growth over profit

There is no doubt much of the stock price plunge has been due to investor sentiment turning against technology businesses.

The S&P/ASX All Technology Index (ASX: XTX) has shed more than 40% since November as the market turned against high-growth companies.

Xero certainly didn’t release any shocking news over the past 12 months that would suggest it deserves to be almost halved.

Even the freefall in June seemed to be driven by external factors.

“Xero recorded a loss of 13.8% over the month, a marked underperformance of the broader S&P/ASX 200 Index (ASX: XJO),” reported The Motley Fool’s Sebastian Bowen.

“This was despite the absence of any news or announcements out of Xero over June. So it’s likely the nasty falls Xero shares experienced were purely driven by the investor apathy towards tech shares that we saw during the month.”

The only performance-related bump could have been back in May after the release of its full-year financials.

Even though the company posted decent numbers, the market punished it for investing its earnings back into the growth of the business — rather than boosting profits.

Xero shares sank 10% within just a few hours of that result.

The pros love Xero

Despite the rapid fall in the stock price, Xero still has plenty of fans.

In fact, professional investors seem to suggest the high quality of the business means it’s now more attractive to buy than ever before.

According to CMC Markets, nine out of 15 analysts rate Xero as a strong buy.

Back in May, Shaw and Partners portfolio manager James Gerrish revealed that the accounting software provider was the biggest holding in his personal portfolio.

“We didn’t think the [financial] result was a bad one. They have simply prioritised growth over profit, which the market currently doesn’t like.”

Motley Fool contributor Tony Yoo has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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