The Xero Limited (ASX: XRO) share price is up 14.99% year to date, closing at $49.35 on Monday.
This has been driven by positive investor sentiment around Xero's full-year results set to be announced 31 March 2019.
Should you buy Xero shares ahead of its FY results?
Xero offers cloud-based accounting software-as-a-service for small and medium-sized businesses. It's an extremely robust accounting solution with intricate accounting features, detailed reports, unlimited users and has a connected app function which allows for over 700+ integrations across companies like Stripe, PayPal and Deputy.
Though a more premium product, the solution is well worth the price tag. It has high mobility and a modern user interface that delivers an exceptional user experience. As of September 2018, Xero had over 1.6 million subscribers and is the accounting solution for 16 thousand businesses worldwide.
The company has achieved phenomenal success, becoming a leader in the cloud accounting market across Australia, New Zealand and the UK. Xero has also grown exponentially in North America, with a 62% subscriber growth year-on-year as of September. Similarly, the company has been making headwinds in Hong Kong, Singapore and even South Africa. Investors will be taking careful note of Xero's ability to scale internationally in the company's FY results March-end.
Half-year performance
In September, Xero published strong half-year results. Of particular note is the rising lifetime value of its customer base and falling customer acquisition cost as a percentage of revenue.
Similarly, investors simply love SaaS companies for starkly high gross margins which usually range between 60-80%. Xero posted an 83% gross margin and I'm positive that this will be maintained in its FY results. This was driven by a 37% growth in underlying revenue to $256.53 million.
Foolish Takeaway
Based on 2020 earnings, Xero is expected to be trading on a 177x multiple, far ahead of its WAAAX peers. This means that investors are willing to dish out a lot of capital to buy into Xero's profits, and the stock price seemingly could continue to shoot up from here.
So, is the Xero share price a buy? I say yes, and I'd be looking to add Xero to my portfolio before its full-year results.
