Why the Xero Limited share price is printing multi-year highs

The local share market’s most valuable technology business in Xero Limited (ASX: XRO) has hit highs not seen in more than 3 years today, ahead of the cloud-accounting business reporting its annual results early next month.

Despite retaining its Welllington HQ the company de-listed from the NZX in February to have a single listing in Australia and the stock has put on more than 20% since the restructure.

Shareholders in Xero’s NZ scrip automatically received scrip in the ASX-listing and a core strategic rationale behind the decision was to improve liquidity and get it included in major indices.

For example serious money managers investing tens of millions of dollars in a stock need liquidity so they don’t move the price too much and any stock below certain trading volumes is impossible for them to trade.

Xero also hoped to attract more analyst coverage and get itself on the radar of large overseas institutional investors with plenty of investing firepower.

As such it appears the strategy has worked with institutional buying likely powering the share price higher in recent months.

This will all count for nothing though if the company does not deliver operationally as it works towards delivering on its forecasts to reach cash-flow breakeven within its current cash balance.

Xero certainly has some attractive characteristics as an investment including its high gross profit margins, recurring revenues, and the large addressable markets in which it operates.

Back in May 2016 I called the stock a potential blue-chip of tomorrow and suggested it was a buy at $16.25 per share.

Since then the stock has more than doubled partly as a result of some strong growth and operational performance, but also probably because of the higher profile it’s now getting among institutional investors.

Today, the stock changes hands for $37.04 and as an investor I’d be inclined to let the market value the stock after it hands in its full year results in a couple of weeks’ time before potentially buying on the relative strength of the results.

Others to consider in the online accounting space include Myob Group Limited (ASX: MYO) or even fast-growing online superannuation platform business Class Ltd (ASX: CL1).

If Xero’s losses aren’t your cup of tea as an investor, why not consider 3 potential blue chips of tomorrow that are already pumping out big profits?

3 of Tomorrow's Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tom Richardson owns shares of Xero.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of Class Limited and 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!