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Xero Limited’s (ASX:XRO) share price is leading the ASX 200 higher today

The Xero Limited (ASX: XRO) share price is racing higher even after the cloud-based accounting software group posted a wider interim net loss.

But investors are happy to overlook this and have sent Xero’s share price jumping 2.3% to $43.97 in late morning trade when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is up 0.6%.

The tech sector is the best performing part of the market as US tech stocks rallied sharply in overnight trade following the mid-term elections in that country as investors there felt that these growth stocks had been oversold during last month’s market sell-off.

The rekindled love affair with high growth technology stocks is infecting the ASX with the WiseTech Global Ltd (ASX: WTC) share price, Afterpay Touch Group Ltd (ASX: APT) share price and the Nextdc Ltd (ASX: NXT) share price enjoying big rallies at the time of writing.

Xero has given investors another reason to bid the stock higher after management unveiled a 40% increase in annualised monthly recurring revenue (AMRR) to NZ$589.1 million as the company added 193,000 net subscribers in the half year to bring the number of subscribers to 1.6 million at September 30, 2018.

But Xero also posted a wider net loss of NZ$28.6 million in 1HFY19 from NZ$19.6 million for the same period last year due to NZ$18.6 million in impairments and costs relating to its partnership with Gusto and the acquisition of Hubdoc.

This has made the result somewhat messy although the more than doubling in operating cash flow to NZ$36 million in the first half will give shareholders some comfort in the scalability of the business.

The exchange rate is also helping boost today’s results and management said that cash outflow in FY19 will be lower than the year before although investors shouldn’t expect Xero to become cashflow positive anytime soon.

“Excluding capital outlays for M&A [mergers and acquisitions], Xero is managing the business to cash flow break-even within its current cash balance, without drawing on its debt facility or the net proceeds from convertible notes issued in October 2018,” said the company in a statement to the ASX.

“Following cash flow break-even, it is intended that surplus cash flow will be reinvested, subject to investment criteria, to drive long-term shareholder value.”

Xero is one of the best-performing stocks on our market but valuing the business is not easy as it still operates at a loss and is burning cash.

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Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO, WiseTech Global, 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.

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