Why shares in XERO FPO NZ are soaring today

What’s happening?

Shares in cloud accounting company XERO FPO NZ (ASX: XRO) have shot up 5.5% this morning, rocketing ahead of the S&P/ASX 200 (Index: ^AXJO) – up 0.8% at the time of writing.

The shift will be a welcome change for Xero shareholders who have watched the company’s share price plunge 30% since the start of the year. The jump is part of a wider rise in New Zealand-based tech stocks which have been soaring on the news that NZX listed tech-company Diligent Corp will be acquired by private equity company Insight Venture Partners for a 31% premium to its closing price on Friday 12 February.

So why is Xero rising?

Diligent Corp provides cloud-based software which helps senior executives and board members exchange documents securely. The news of its takeover may come as a wake-up call for investors about Xero’s prospects.

Shares in Xero have plummeted by 30% so far this year as general fear and volatility hits share markets. But with no other company announcement Diligent’s sale is a solid reminder to investors that share market volatility has little impact on Xero’s day-to-day operations and the company’s underlying value.

Xero’s share price fall in 2016 has also mirrored the fall of shares in Sydney-based tech company Atlassian Corporation which listed on the NASDAQ last year. Atlassian has also plunged 30% so far in 2016 as U.S. tech-based companies get hammered.

Now what?

Xero still has ambitions of a U.S. listing on the NASDAQ when the time is right, and the acquisition of Diligent demonstrates that there remains a strong appetite in the U.S. for well established, growing tech companies.

In my view Xero fits this criteria, leading me to ponder last year if Xero could be the next Atlassian. However even if the company is far away from a U.S. listing, based on the company’s growth to date, strong customer appeal and wide operating margins, I find Xero shares attractive at its current price.

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Motley Fool contributor Regan Pearson owns shares of Xero. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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