There is a select group of ASX shares that have performed very well in the last few years, increasing by well over 100%.
Past performance is not necessarily a reliable indicator of future performance when it comes to share prices. But, if a business can keep growing its scale and margins, then it gives a good chance of that ASX share doing well for shareholders.
Let's look at what has driven these two winners higher.
TechnologyOne Ltd (ASX: TNE)
The ASX tech share describes itself as Australia's largest enterprise software company with offices across six countries. It provides a global software as a service (SaaS) enterprise resource planning (ERP) solution. Clients include large corporations, government agencies, local councils and universities.
In five years, the TechnologyOne share price has risen by 280%, as we can see on the chart below
Five years ago, the business was a lot less profitable than it was today. In the FY18 half-year result, it reported net profit before tax of $10.4 million and an annual SaaS contract value of $31 million.
The company has made a big push to grow its SaaS offering, which could be more attractive for clients and can create higher profit margins.
The ASX share has executed on its strategy excellently. In the FY23 half-year result, it revealed that it made profit before tax of $52.7 million – five times more than five years ago, while SaaS annual recurring revenue (ARR) has jumped to $316.3 million. It's also starting to see good results in the UK, with profit of $3 million.
In the long term, the business says it's on track to beat total ARR of at least $500 million by FY26. It's expecting the profit before tax margin to rise to at least 35%, and the business believes it will double in size every five years, partly thanks to its ability to keep increasing revenue from its existing customer base.
Xero Limited (ASX: XRO)
Xero is an accounting software business, headquartered in New Zealand, that operates across the globe, though its key markets are currently Australia, New Zealand and the UK.
In the last five years, the Xero share price has jumped 170%, as we can see on the chart below.
The ASX tech share has been looking to grow its global subscriber base, and it has been very successful at doing so.
Five years ago, it announced its FY18 result and said that operating revenue had reached $406.6 million, the gross profit margin was 81% and total subscriber numbers had hit 1.39 million.
In the FY23 result, it reported operating revenue of $1.4 billion, subscribers of 1.74 million and a gross profit margin of 87.3%.
The business continues to see good subscriber growth, but it's seeing double-digit progress with its average revenue per user (ARPU), with 10% growth in FY23 to $34.61.
Xero is expecting its profit margins to improve in FY24, with the operating expense to operating revenue ratio expected to be 75%, while it was 80.7% in FY23. Improving profitability could be a boost for the Xero share price in future years.
