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One of the most disappointing S&P/ASX 200 Index (ASX: XJO) shares over the past few months has to be the A2 Milk Company Ltd (ASX: A2M). A2 Milk shares have had an absolute clanger over the past year or so, following years of rapidly compounding returns.

Just for a refresher, A2 Milk climbed from 56 cents a share in April 2016 to a high of $20.05 a share in July last year. That’s a climb worth around 3,500%, enough to turn a $1,000 investment into almost $36,000.

But how the mighty have fallen. Since peaking at over $20 a share in July, A2 Milk has fallen quickly, and dramatically, out of favour with investors. Today, the A2 Milk share price sunk as low as $5.44 — the lowest level the dairy company has plumbed since mid-2017. From its peak last year, that’s a fall of over 72%. 72 cents in every dollar gone. Ouch.

Why did this happen? Well, everything that could have gone wrong at A2 seems to have gone wrong – Murphy’s Law at its finest.

Firstly, the coronavirus pandemic dried up A2’s lucrative daigou export channel. This is where customers buy A2 Milk products and resell them in China. Obviously, with the borders being shut and all, it’s a lot harder for customers to get these products to China these days. And the escalating diplomatic spat between the Australian government and the Chinese government isn’t helping matters at all.

A2 shares suffer from all sides

But the company has been unable to right its ship, as it were. Just this week, the company was forced to downgrade its FY2021 guidance for the fourth time. It also flagged inventory issues, which might necessitate heavy discounting to resolve. It wasn’t pretty – A2 Milk shares lost 15% on the news.

So how much has this debacle cost investors? Well, a lot. Anyone who has bought A2 shares after September 2017 is probably underwater for a start. A2 Milk has never paid a dividend, so there’s no comfort to be found down that avenue either.

If an investor bought $10,000 worth of A2 Milk back in July last year at the company’s high point, they would only have roughly $2,800 left of their position today. Even if an investor ‘bought the dip’ back in December, when A2 lost more than 20% in one day after one of its many FY2021 downgrades, they would be in a world of pain. A $10,000 position back then would only be worth ~$5,520 today.

Can the compnay turn things around?

But perhaps investors have been too bearish on A2. If sentiment turns too viciously, or emotionally, against a company, it can often create a value-driven buying opportunity. And high-growth shares like A2 Milk tend to inherently come with a lot of volatility.  So what do the brokers think?

Well according to CommSec, investment bank Goldman Sachs thinks this might be the case. It recently downgraded A2 from its old price target of $9.69 a share but is still aiming for $6.96, albeit with a ‘neutral’ rating. That’s still a good 25% higher than the current A2 share price. Yesterday, my Fool colleague James Mickleboro also reported that broker Morgans has a $6.65 price target for A2 Milk.

So some reckon we may have found a bottom for the A2 Milk share price and things can get better from here. Investors will no doubt be hoping that they’re right.

More reading

• ASX 200 falls below 7,000, Xero sinks, Afterpay falls
• Top brokers name 3 ASX shares to sell today
• ASX 200 down 0.4%: Xero sinks, Telstra hit with $50m fine
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 drops again, Pushpay rises, CSR climbs

Motley Fool contributor Sebastian Bowen owns shares of A2 Milk. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) fell around 0.9% today to 6,983 points.

Here are some of the highlights from the ASX:

Growth shares flattened

Many of the previously high-flying ASX shares are being pummelled at the moment on inflation worries which may lead to rising interest rates.

Looking at the ASX boards, the Afterpay Ltd (ASX: APT) share price was one of the worst performers as it dropped around 5.5%. A2 Milk Company Ltd (ASX: A2M) was another that fell heavily, just over 5%.

Other growth names also fell by more than 5% including Sezzle Inc (ASX: SZL) and Splitit Ltd (ASX: SPT).

Orica Ltd (ASX: ORI)

Orica announced its FY21 first half result today for the six months to 31 March 2021.

The business reported the sales revenue was down 9% to $2.62 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 25% to $361.5 million and earnings before interest and tax (EBIT) declined 51% to $151.8 million.

Underlying net profit after tax dropped 56% to $73.4 million. Statutory half-year profit fell 54% to $76.7 million.

Orica explained that ammonium nitrate volumes were down 1% on the prior corresponding period at 1.04 million tonnes and down 9% excluding volumes from the Exsa business which was acquired on 30 April 2020.

This profit decline was because of a number of market factors including ongoing COVID-19 disruptions, geopolitical issues and unfavourable foreign exchange movements.

However, the ASX 200 company said it is maintaining a disciplined approach to its balance sheet and capital management, while improving cash generation and controlling debt and gearing. Operating cash flow improved 46% to $158 million, with net debt finishing at $1.7 billion.

The board declared an interim dividend of 7.5 cents per share, which was within its target payout ratio of 42%.

Orica’s outlook is improving, with volumes in the second half expected to be better than the first half. However, COVID-19 and the trade issues between Australia and China continue to be a factor.

The company is expecting FY21 second half EBIT to be lower than the FY20 second half.

Xero Limited (ASX: XRO)

The Xero share price fell around 14% after releasing its FY21 result to investors.

Operating revenue increased 18% to NZ$848.8 million, whilst annualised monthly recurring revenue (AMRR) rose 17% to NZ$963.6 million.

Total subscribers increased to 20% to 2.74 million, bringing the total subscriber lifetime value (LTV) up by 38% to $7.65 billion.

The ASX 200 share’s free cashflow rose 110% to NZ$56.95 million. EBITDA grew by 39% to NZ$191.2 million and net profit after tax rose significantly to NZ$19.77 million.

Xero CEO Steve Vamos said:

As well as responded to our customers’ needs during the pandemic, we continued to execute our strategy, with strong revenue and subscriber growth, completion of a significant capital raise, and the acquisitions of Planday, Tickstar and Waddle.

The past year has brought home to many people in small business the need to understand in real-time their financial position and how it may change. The value and important of our customers place on their subscription and connection to the broader Xero community is increasing.

Looking ahead we believe small business will be a major driver of economic recovery in a post-pandemic world. Small businesses make up more than 90% of businesses in the markets Xero operates in, and represent a significant contribution to economic activity, jobs and the community.

More reading

• Should you buy Afterpay (ASX:APT) and this ASX tech share following the selloff?
• What’s driving the Afterpay (ASX:APT) share price to 8-month lows?
• 3 reasons why the Xero (ASX:XRO) share price selloff could be an opportunity
• Why American Pacific Borates, NAB, Perenti, & Xero are tumbling lower
• Top brokers name 3 ASX shares to sell today

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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I like to keep an eye on substantial shareholder notices. This is because these notices give you an idea of which shares large investors, asset managers, and investment funds are buying or selling.

Two notices that have caught my eye are summarised below. Here’s what these fund managers have been buying:

EML Payments Ltd (ASX: EML)

A notice of change of interests of substantial holder reveals that Commonwealth Bank of Australia (ASX: CBA) has been buying this payments company’s shares via its Avanteos Investments and Colonial First State businesses.

According to the release, the bank has increased its holding in EML Payments by ~3.75 million shares from ~18.3 million to ~22.06 million shares. This equates to a 6.1% stake in the company, which is up from 5.06% previously.

One leading broker that would be supportive of these purchases is UBS. Last month the broker responded to the company’s announcement of the acquisition of Nuapay by retaining its buy rating and lifting its price target to $6.20.

The EML Payments share price is currently trading at $5.18. This implies potential upside of almost 20% over the next 12 months.

IDP Education Ltd (ASX: IEL)

Another notice of change of interests of substantial holder shows that Bennelong Funds Management has been increasing its stake in this language testing and student placement company.

According to the notice, Bennelong Funds Management has acquired approximately 5.5 million IDP Education shares, lifting its stake to a total of ~25.3 million shares. This means it has increased its interest from 7.7% to almost 9.1%.

Once again, analysts at UBS are likely to approve of these purchases. Last month the broker put a buy rating and $29.05 price target on the company’s shares.

The compares to the latest IDP Education of $20.81, which represents potential upside of almost 40% over the next 12 months.

More reading

• Broker tips IDP Education (ASX:IEL) share price to smash the market in 2021
• Little ASX software share to explode once everyone wakes up: fundie
• 3 buy rated mid cap ASX shares for the long term
• 2 impressive ASX shares to buy in May 2021
• 2 top ASX growth shares rated as buys

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Advanced Human Imaging Ltd (ASX: AHI) share price has plummeted today after the company released a commercial agreement with e-Mersion Media. 

Advanced Human Imaging shares are down 8.19% to $1.07 at the close of trade today, against a huge 12-month return of 610%. Let’s see why the smartphone-based human scanning technology producer has been wobbling lately.

Advanced Human Imaging deal

In today’s release, Advanced Human Imaging advised it has just signed a binding term sheet, which is an informal pre-contractual agreement, with e-Mersion Media.

e-Mersion Media is a Melbourne company that specialises in providing digitisation capabilities to print magazines. It focuses on increasing magazine engagement through interactive touch and videography.

The deal will allow Advanced Human Imaging to spruik its technology through e-Mersion’s digital portal, utilising the company’s audio, video and other engagement capabilities.

e-Mersion will advertise Advanced Human Imaging’s body scanning services to highly targeted customers through its digital magazines.

Advanced Human Imaging’s report says that e-Mersion publications “have the potential to reach millions of consumers every month via channels they operate within and clients they service”. 

Management comments

Advanced Human Imaging CEO Vlado Bosanac spoke about the company’s thought process, saying:

When I met the guys from e-Mersion, they shared with me their digital publication platform. My immediate thought was its just a hybrid version of Kindle. When they demonstrated an interactive magazine they had enhanced, it could not have been further from what I was thinking.

I was floored by the level of interaction and how the content was a combination of touch, video, and sound. I can see people interacting with this enhanced magazine technology and using their in-device camera empowered with our technology to have a health check or simply size a garment before they order right there in the magazine.

Advanced Human Imaging share price snapshot

It seems the company’s investors have not been as excited by the deal as its CEO. The Advanced Human Imaging share price has fallen by an incredible 70 cents (46% of its value) in just 13 days since the end of April.

Advanced Human Imaging shares fell by a similar margin just seven days ago on news of a similar tech partnership with Discovery subsidiary Vitality.

More reading

• Advanced Human Imaging (ASX:AHI) share price sinks despite positive update
• Advanced Human Imaging (ASX:AHI) share price wobbles on agreement
• What’s with the Advanced Human Imaging (ASX:AHI) share price today?
• Why has the Advanced Human Imaging (ASX:AHI) share price plunged 5%?

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Advanced Human Imaging (ASX:AHI) share price is sinking, but why? appeared first on The Motley Fool Australia.

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The 4DS Memory Ltd (ASX: 4DS) share price was rising against the tide of today’s negative ASX market trend. This followed the memory storage provider’s announcement of a renewed partnership agreement.

By the market’s close, 4DS Memory shares were trading at 14 cents a pop, up 7.7% for the day. In comparison, the All Ordinaries Index (ASX: XAO) ended the day sitting at 7,194 points, down 1.2%.

What does 4DS do?

4DS Memory is a semiconductor company that develops resistive random-access memory (ReRAM). With research facilities in Silicon Valley, the start-up tech is focused on commercialising its product to become a replacement for more traditional Flash memory storage.

Renewed agreement

Investors were buying up 4DS Memory shares today after the company announced a positive update to the ASX.

According to its release, 4DS Memory has signed a renewed joint development agreement (JDA) with Western Digital Corporation subsidiary, HGST. The partnership will see both companies work together for another 12 months, marking 8 consecutive years of partnership.

4DS Memory is currently developing its interface switching ReRAM technology with HGST as well as digital innovation hub, IMEC.

CEO and managing director of 4DS Memory Dr Guido Arnout welcomed the renewal, saying:

We are very pleased that Western Digital and HGST have renewed our joint development agreement following a review of our significant progress during the past twelve months. This progress includes the Second Platform Lot currently in the final fabrication stage at imec that we will receive in early June for analysis.

HGST signed the agreement well ahead of its initial due date of 30 June 2021.

4DS Memory share price review

It’s been a great 12 months for investors, with the 4DS Memory share price jumping by more than 200%. Year-to-date performance, however, has been less impressive, with the company’s shares rising by just 12%.

4DS Memory shares reached a multi-year high of 28 cents in January this year before retreating to their current level. 

The company commands a market capitalisation of roughly $170 million, with approximately 1.3 billion shares outstanding.

More reading

• Up 21%, why the Bod (ASX:BDA) share price is smoking the market today
• ASX 200 Weekly Wrap: Bank shares push ASX 200 towards all-time high
• Here’s why the QuickFee (ASX:QFE) share price is zooming 28% higher
• ASX 200 Weekly Wrap: Shares have average week but a great month
• Why the Prospa (ASX:PGL) share price has surged 7%

Motley Fool contributor Aaron Teboneras owns shares of 4DSMEMORY FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Concerns about inflation, interest rates, and valuations have put a lot of pressure on the tech sector this year. While this is disappointing, it does appear to have dragged a good number of tech shares down to very attractive levels.

When the dust finally settles, here’s why these ASX tech shares could be the ones to buy:

Afterpay Ltd (ASX: APT)

The Afterpay share price is currently trading at $84.50. This means the buy now pay later (BNPL) focused payments company’s shares are now down 47% from their 52-week high of $160.05.

While the company’s shares are certainly at the high end of the risk scale due to the enormous amount of future growth that is already being priced in, Afterpay does appear well-placed to deliver on expectations.

This is due to the increasing popularity of BNPL with both consumers and merchants. In respect to the former, Afterpay has been growing its global customer numbers at a rapid rate over the last few years. This has been complemented by a significant increase in repeat usage.

The good news is that Afterpay looks well-placed to continue its growth for the foreseeable future. This is due to its ongoing international expansion and new product launches. The latter will see the company release banking products via the Afterpay Money app in the near future.

Last week Morgan Stanley put an overweight rating and $149.00 price target on the company’s shares.

Altium Limited (ASX: ALU)

Another ASX share to consider when the dust settles is this leading electronic design software provider. The Altium share price is currently trading at $23.99, which is down 40% from its 52-week high of $40.21.

This could be a buying opportunity for patient investors due to the company’s strong long term growth potential. This positive outlook is thanks to its exposure to the rapidly growing Internet of Things and artificial intelligence markets. As these markets are underpinning an explosion of electronic devices globally, demand for its key Altium Designer and 365 platforms look set to increase materially over the next decade.

But Altium isn’t a one trick pony. It also has other businesses with positive outlooks as well. These are its workflow solution platform NEXUS and electronic parts search engine Octopart. Both are supporting Altium’s growth and have sizeable market opportunities of their own. A testament to the quality of the NEXUS platform is that it counts Tesla and SpaceX as customers.

Management is positive on the future. Due to favourable industry tailwinds and its leadership position, it is targeting revenue of US$500 million by FY 2025/26. This will be more than double what it expects to achieve in FY 2021.

Analysts at Citi are positive on the company and have a buy rating and $33.50 price target on its shares.

More reading

• What’s driving the Afterpay (ASX:APT) share price to 8-month lows?
• Why are ASX tech shares like Afterpay (ASX:APT) crashing today?
• Will the Afterpay (ASX:APT) share price go up?
• Why Afterpay, CSR, Electro Optic Systems, & Estia Health are storming higher
• ASX 200 down 1%: CBA Q3 update, tech shares rise, Qantas update

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO and Altium. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Should you buy Afterpay (ASX:APT) and this ASX tech share following the selloff? appeared first on The Motley Fool Australia.

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Gone are the days of a surging Afterpay Ltd (ASX: APT) share price. Its shares slipped to an intraday low of $81.85 today, dragging its year-to-date return to a grim -28%. 

What’s been impacting the Afterpay share price? 

The BNPL sector can’t seem to keep it together

In theory, the Afterpay share price should move in tandem with its ASX-listed and overseas BNPL peers, despite competing against each other for market share. The same arguably takes place for the big four banks, insurers, miners etc. 

At the height of the BNPL craze last year, the Afterpay share price surged 30% in quick succession from $70 in July to $90 in August. During the same period, competitors including Splitit Payments Ltd (ASX: SPT), Sezzle Inc (ASX: SZL) and Zip Co Ltd (ASX: Z1P) were also quick to double in valuation.

This was during a time where it seemed like any announcement could warrant a surge in share price. For example, when Zip announced a partnership with Ebay and launched its Zip Business division on 26 August 2020, it triggered its share price to jump 25% on the day. 

Fast forward to today, it seems the opposite could be taking place. 

Take Openpay Ltd (ASX: OPY) for example. The company delivered a solid 3Q21 update last month, alongside an expansion into the US$55.8b US and UK veterinary markets in partnership with ezyVet.

The company said that it “continues to move with urgency to capture market opportunity and disrupt major payments markets with its highly relevant and transparent offering for merchants and consumers”. Despite the positive announcement, its shares edged 2.5% lower on the day. 

ASX-listed BNPL shares have been sharply sold off in recent weeks. Bigger players such as Sezzle and Zip have been able to stay in positive year-to-date territory. While smaller players such as Openpay, Splitit Ltd (ASX: SPT) and Humm Group Ltd (ASX: HUM) are fast approaching 6-12 month lows. 

Tech shares are falling out of favour 

The  S&P/ASX200 Info Tech (INDEXASX: XIJ) has slumped almost 20% year-to-date and is down a painful 4.87% at the time of writing.

This weakness might be understandable if the broader market was selling off. However, the S&P/ASX 200 Index (ASX: XJO) has pushed north of 5% since the start of the year.

US-listed BNPL giant dips 10% overnight 

To add further insult to injury, the US-listed Affirm Holdings Inc (NASDAQ: AFRM) share price dropped 10% lower on Wednesday night to a new all-time record low of US$49.82.

Foolish takeaway

The Afterpay share price is seemingly trapped between a rock and a hard place, with the broader tech sector selling off, BNPL peers sinking and its main US rival hitting record all-time lows. 

More reading

• Should you buy Afterpay (ASX:APT) and this ASX tech share following the selloff?
• Why are ASX tech shares like Afterpay (ASX:APT) crashing today?
• Why the Humm (ASX:HUM) share price just hit a 52-week low
• Is the Zip (ASX:Z1P) share price a beaten-down buy?
• Why Zip (ASX:Z1P) and these ASX growth shares are rated as buys

Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Humm Group Limited and Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post What’s driving the Afterpay (ASX:APT) share price to 8-month lows? appeared first on The Motley Fool Australia.

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The IDP Education Ltd (ASX: IEL) share price has been a disappointing performer over the last 30 days.

Since this time last month, the language testing and student placement company’s shares are down 15%.

This means the IDP Education share price is now trading broadly flat in 2021.

Why is the IDP Education share price down 15% in a month?

Investors have been selling the company’s shares over the last 30 days amid weakness in the tech sector and concerns about rising COVID-19 cases in India.

Given that the Indian market is the company’s largest market and contributes over a third of its revenue, the terrible situation unfolding in the country looks set to derail IDP Education’s recovery.

Is this a buying opportunity?

According to a note out of Morgans, its analysts believe the recent weakness in the IDP Education share price is a buying opportunity for investors.

This morning the broker retained its add rating but trimmed its price target slightly to $28.48.

Based on the current IDP Education share price of $20.85, this represents potential upside of almost 37% over the next 12 months.

What did the broker say?

Morgans said: “The recent COVID-19 outbreaks in India provide a headwind to the recovery. We estimate that India accounts for ~40% of IEL’s IELTS testing revenue, which assuming 115k tests per month would equate to ~A$11.8m revenue and ~A$5.2m GP/EBITDA per month.”

“Additionally, recent border shutdowns to Indian outbound immigrants (e.g. Canada/Australia) does have the potential to impact Student Placement volumes, however the estimated financial impact is more difficult to ascertain given online vs physical starts,” it added.

However, the broker feels it is worth sticking with the company. Especially as it believes IDP Education is well-placed for growth when trading conditions normalise. Morgans is anticipating market share gains and sees opportunities for M&A activities.

It explained: “We believe IEL is well-placed to capitalise on recovering international student demand via improved market share across IELTS/student placement. We note prior to COVID-19, IEL was delivering on its multi-destination student placement expansion well ahead of consensus estimates – a thematic we expect can return in time.”

Morgans concluded: “We continue to like IEL as a structural growth story with meaningful leverage to a global reopening. We believe earnings risk lies to the upside as pent-up demand levels are quantified, with M&A providing a potential further catalyst. ADD maintained.”

More reading

• 3 buy rated mid cap ASX shares for the long term
• 2 top ASX growth shares rated as buys
• Top brokers name 3 ASX shares to buy today
• IDP Education (ASX:IEL) share price sinks 5%: Time to buy?
• Brokers think these 2 top ASX shares are buys in May 2021

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Xero Limited (ASX: XRO) share price is down 11% at the time of writing. The sell-off could prove to be an opportunity for investors over the long-term.

Why is the Xero share price falling?

Not only is there a wide selldown of ASX growth share names, but Xero just released its FY21 result which wasn’t quite as strong as some investors were expecting.

Operating revenue grew by 18% to NZ$848.8 million, with total subscriber growth of 20% to 2.74 million. Annualised monthly recurring revenue (AMRR) grew 17% to NZ$963.6 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) went up 39% to NZ$191.2 million and free cashflow rose 110% to NZ$56.95 million. Net profit after tax (NPAT) grew from NZ$3.3 million to NZ$19.77 million.

The total lifetime value of subscribers went up 38% to NZ$7.65 billion.  

Here’s why the Xero share price could be an opportunity

A lower share price can present a better time to buy shares. But there still have to be compelling reasons to believe there can be long-term growth of the business.

Continuing growth of the profit margin

One of Xero’s best selling points is how profitable it is. Not necessarily at the net profit line – it only made NZ$20 million of profit – but at the gross profit line. Xero has one of the highest gross profit margins on the ASX. This shows how low cost it is to deliver its exceptional cloud accounting software product to clients.

How high is the gross profit margin? A year ago in FY20 it was 85.2% and in FY21 it grew by another 0.8 percentage points to 86%. This means that most of the new revenue can fall to the next profit line without losing much to unavoidable variable costs.

But Xero can use a lot of that new revenue to re-invest for better products and win over even more customers.

Large international growth

Australia and New Zealand are great countries. However, they have relatively small populations and that means the addressable markets are quite small. But when a high-quality ASX share can expand significantly overseas, then it means that company has a very long growth runway.

The local markets are still seeing very strong growth for. New Zealand subscribers rose by 14% – this was the best year for net subscriber growth in three years. Australian subscribers went up 22% to 1.11 million – this was the best ever year of growth.

Internationally, Xero is also doing very well. UK subscribers grew 17% to 720,000 – there was a good recovery in the second half of the year, leading to the second strongest half period. North American subscribers went up by 18% in the year to 285,000.

There was particularly strong growth in the rest of the world with a 40% increase of subscribers. The largest contributors to subscriber growth here was South Africa and Singapore.

Long-term focus

Xero is focused on the long-term for shareholders. During the year it made acquisitions (called Planday, Tickstar and Waddle) to improve the overall offering for subscribers.

The company said:

Xero will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.

Xero plans that its total operating expenses (excluding acquisition integration costs) as a percentage of operating revenue in FY22 will be in the range of 80% to 85%, which is consistent with levels seen in the second half of FY21 and the pre-pandemic period.

As the business invests to win higher market share, it aims to increase the underlying value of the entity to shareholders.

More reading

• Why American Pacific Borates, NAB, Perenti, & Xero are tumbling lower
• Is the 11% drop in the Xero (ASX:XRO) share price a buying opportunity?
• Why are ASX tech shares like Afterpay (ASX:APT) crashing today?
• ASX 200 down 0.4%: Xero sinks, Telstra hit with $50m fine
• Xero (ASX:XRO) share price on watch after delivering strong growth in FY 2021

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The ASX is sliding again today. It looks to be shaping up for the third straight day of losses.

At the time of writing, the All Ordinaries Index (ASX: XAO) is down 0.8%. That brings the All Ords down more than 2.5% from the all-time highs it reached on Monday.

Now, these types of price swings are quite ordinary. But that won’t stop some investors from wondering if the market will keep falling and whether now could be the time to sell some shareholdings. At the same time, other investors are sure to ponder if this week’s retrace might not represent a good time to buy the dip.

Lacking a crystal ball, I can’t tell you which way the ASX will move over the coming days.

The best I, or anyone, can do is make an educated guess.

Which, according to Shane Oliver, head of investment strategy and chief economist at AMP Capital – is often a mistake.

Five essential lessons for ASX investors

Yesterday, I sat in on AMP Capital’s Webinar, where Oliver offered his analysis of the Federal Budget and provided an outlook for the ASX and global share markets.

One of the key takeaways was the 5 lessons investors should learn from the past COVID-focused year.

A question of timing

First, timing markets is hard.

As difficult as it is to call a near market high, it’s just as hard to call the near market low. Which means trying to time the markets correctly is largely a function of luck.

Oliver said:

You may have got out in January or February last year when markets were at record highs. Maybe you saw the pandemic coming. But the question is, did you get back in in March? And I reckon most investors [who sold out] didn’t. Then you end up getting in 6 or 12 months later when the market is very much higher.

Central banks rule, okay

The second essential lesson for ASX investors is: don’t fight the central banks.

You’ve likely heard the investor adage, “Don’t fight the Fed.” But following the outbreak of COVID-19, it wasn’t just the US Federal Reserve moving in to support markets. It’s been a concerted effort from the Fed, the Reserve Bank of Australia (RBA), the People’s Bank of China (PBoC), the European Central Bank (ECB), and more. Not a team you want to bet against.

No time for depression

Which brings us to Oliver’s third essential lesson ASX investors should take aboard from the past year: depressions can be avoided.

“Twelve months ago, everyone was talking about a depression. Not just a recession but a depression. And we avoided that,” Oliver said. He added that the government’s temporary support measures worked. Despite dire unemployment predictions, a lot of people didn’t lose their jobs thanks to measures like JobKeeper.

Though things still looked bleak on the ground on 23 March 2020, share markets look ahead. And hence the ASX surged from the 23 March lows, with the All Ords now up more than 49% since then.

Don’t overlook interest rates

Oliver’s fourth essential lesson for ASX investors is not to lose sight of the impact of record low interest rates.

You may have read some rather frightening figures on valuations on the ASX in terms of price to earnings (P/E) ratios. But it would help if you kept those in the context of the low rates.

According to Oliver, investment valuations need to be assessed relative to interest rates.

Even when you look at the forward P/E, in Australia we’re at 19-times, which sounds high, but you’ve got to allow that the yield you’re getting out of the share market is still much higher than the level of interest rates.

And that higher yield, he said, is what’s keeping money flowing into the ASX.

Noise-cancelling headphones, anyone?

Finally, Oliver’s fifth lesson for ASX investors is to turn down the noise.

“This is very important,” he said. “I reckon if you focus on the long-term rather than all the short-term noise, you’ll actually do reasonably well with your investments.”

Oliver pointed to the long-term trend of the value of the Aussie share market, which is strongly higher.

“The way to take advantage of that is to take a long-term strategy, make the most of compound interest… But don’t get thrown off by the cycle. In other words, try and turn down the noise.”

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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