The S&P/ASX 200 Index (ASX: XJO) share Xero Ltd (ASX: XRO) has declined 28% in five years, which is a significant decline considering the ASX 200 is close to all-time highs. It's down even more (49%) since June 2025, as the chart below shows.
If you just looked at the financials of the business in the past five years, you'd see significant progress by the ASX 200 tech share.
Interest rates have risen considerably in the last five years, which is a headwind for share prices, but I'm going to highlight how the company has done more than enough over the last five years to justify its valuation being higher than it is today.
Image source: Getty Images
Global growth
There are few ASX shares that have been successful as Xero at growing internationally.
Australia and New Zealand are great countries to do business in, but there are a lot more potential subscribers across the rest of the world.
Xero operates in a number of other regions including the UK, Canada, Ireland, the US, South Africa, Singapore, Malaysia, Hong Kong, Indonesia and the Philippines.
In the FY26 first-half result, the business reported that its global subscriber base rose 10% year-over-year to 4.6 million. It reached 2.7 million subscribers across Australia and New Zealand, with the rest of the world reaching 1.9 million subscribers. It's a great sign that the business has a subscriber loyalty rate of around 99% each year.
The business recently acquired Melio, a US business that enables subscribers to pay their accounts payable through a wide choice of payment methods. This can help diversify Xero's growth avenues and provide cross-selling opportunities in the US.
I think there's a great chance for the ASX 200 share to significantly grow from here in the coming years as the world's small and medium business sector digitalises further with their accounting (particularly with governments preferring online and faster reporting).
Great profitability
There are not many businesses on the ASX with a stronger gross profit margin than Xero at more than 88%.
When the margin is that high, it means a large majority of new revenue can be used by Xero for growth spending (advertising and R&D) and/or increase the profit lines.
After years of heavy focus on growth, the ASX 200 share is now balancing growth and profitability.
The HY26 result was a great sign of how profit is flowing strongly. While operating revenue rose 20% to NZ$1.2 billion, net profit jumped 42% to NZ$135 million and free cash flow soared 54% to NZ$321 million.
Broker UBS suggests that the business is projected to see net profit soar from NZ$235 million in FY26 to NZ$1.1 billion in FY30.
With that profit outlook, I think the ASX 200 share is significantly undervalued by the market.
