BHP share price in focus
BHP Group (formerly known as BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing.
BHP’s core business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: copper and related minerals (e.g. gold, uranium, silver, zinc, etc.); iron ore; and coal (i.e. metallurgical and energy). While these categories make up the bulk of revenue and profit, the company is also diversifying into other areas such as fertiliser.
BHP shares have long been viewed as a reliable dividend-paying investment and are a common member of Australian share portfolios. It’s also one of the largest companies in Australia so if you own an ASX 200 ETF or LIC, or even have money in superannuation, chances are you already have some exposure to BHP shares.
XRO shares
Founded in 2006 in Wellington, New Zealand, by Rod Drury, Xero has grown into a global leader in cloud-based accounting software. Under Drury’s leadership until 2018 and under a new CEO since, the company has expanded to employ over 3,000 people and now serves millions of subscribers worldwide.
Xero’s “beautiful accounting software” is designed primarily for accountants and bookkeepers, enabling them to better serve small business clients. It offers real-time financial data accessible on any device, empowering small business owners and their advisors with up-to-date insights.
BHP & XRO share price valuation
One way to have a ‘quick read’ of where the BHP share price is could be to study something like dividend yield over time. This can give us a sense of the stability of the company and whether they can consistently pay out a percentage of profits.
Remember, the dividend yield is basically the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, BHP Group Ltd shares have a dividend yield of around 3.90%, compared to its 5-year average of 6.86%. In other words, BHP shares are trading lower than their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing, or both. In the case of BHP, we can see that last year’s dividend was less than the 3-year average, so the dividend has been falling.
Since XRO is more of a ‘growth’ company than an established blue chip, a price-sales ratio might be a more appropriate assessment. This ratio gives us an idea of how the company has historically been valued relative to its earnings, which can indicate if the company is over or undervalued today.
The XRO share price currently trades at a price-sales ratio of 8.86x, which compares to its 5-year long-term average of 18.65x. So, XRO shares are trading lower than their historical average.
Don’t forget, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! It’s a good idea to use multiple valuation methods to value a share like Xero Ltd.
