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The BHP Group Ltd share price has fallen by 19.7% since the beginning of 2024, prompting questions about whether it currently represents good value. Meanwhile, the Xero Ltd share price is now just 0.6% away from its 52-week high.
BHP Share Price Overview (ASX:BHP)
BHP Group, formerly known as BHP Billiton, is a diversified natural resources company established in 1885 that produces commodities for energy use and manufacturing. The company is also expanding its interests into fertilizers. BHP’s primary operations focus on mineral exploration and production, with assets and interests categorized into three main areas: copper and related minerals (such as gold, uranium, silver, and zinc), iron ore, and coal (both metallurgical and energy).
BHP shares are frequently viewed as reliable for dividend payouts and are a common component of many ASX portfolios, including popular ETFs, LICs, and superannuation funds. As a mature business, BHP is often evaluated using metrics like return on invested capital (ROIC) and revenue growth as indicators of sustainability. In FY23, BHP achieved a ROIC of 28.10%, with revenue compounding at a rate of 22.7% in recent years. A ROIC above 10% is generally considered strong for a mature company, suggesting BHP Group meets this standard.
Xero Share Overview (ASX:XRO)
Xero Ltd was founded in 2006 in Wellington, New Zealand, by Rod Drury, who led the company until 2018. Xero employs over 3,000 people and supports millions of subscribers worldwide in managing their accounting and tax obligations.
Xero's cloud-based accounting software is designed primarily for accountants and bookkeepers to help them better serve small business clients. The software allows small business owners and their advisors to access real-time financial data on any device. Xero provides its services in markets such as New Zealand, Australia, the UK, and, to a lesser extent, the USA.
BHP Share Price Valuation
One way to quickly assess the BHP share price is to look at its dividend yield over time. The dividend yield represents the 'cash flow' to shareholders, but it can fluctuate year to year. Currently, BHP shares have a dividend yield of approximately 6.28%, compared to a 5-year average of 6.14%, indicating they are trading above their historical average yield.
For Xero, a growth-oriented company rather than a mature blue chip, the price-sales ratio may be a more relevant metric. The Xero share price currently trades at a price-sales ratio of 14.02x, slightly above its 5-year average of 13.37x. While this suggests a higher valuation compared to its historical average, it is important to recognize that such a metric is only a starting point for further analysis. Various methods, including Discounted Cash Flow (DCF) and Dividend Discount Models (DDM), can provide deeper insights into the value of shares like Xero Ltd.
The Rask websites offer free online courses that explain these valuation methods, accompanied by downloadable valuation spreadsheets to aid further research.
