The Motley Fool

Why the Xero share price rose 8% in October

The Xero Limited (ASX: XRO) share price was up 8% in the month of October. XRO shares started last month at $63.82 a share but closed yesterday at $68.83 – a monthly gain of 7.85%. Xero has today opened higher still at $69.42 at the time of writing, which is only just below its all-time high of $70.80.

These monthly gains cap off what has been a fantastic year for Xero and its shareholders so far. XRO shares started 2019 off at $41.95 – meaning on today’s share price Xero has delivered year-to-date gains of just over 65%.

Why did Xero shares rocket in October?

As part of the ASX’s exclusive WAAAX tech club, Xero’s stellar growth numbers together with its subscription-based software-as-a-service business model have gotten growth investors hot under the collar for this company. Xero sells accounting software that stands out for its simple and ‘beautiful’ platform and it has been posting both double-digit growth in earnings and subscriber numbers.

Adding to the positive sentiment around Xero was a mid-October announcement that the company had snared top accounting firm RSM Australia as a client – its single biggest inflow of customers to date. According to Xero, RSM has more than 30 offices and thousands of small business clients that it brings to the company’s platform.

In comparison, 2 other WAAAX shares – WiseTech Global Ltd (ASX: WTC) and Afterpay Touch Group Ltd (AX: AAPT) have had a very negative month. WiseTech was the victim of a short seller attack, resulting in WTC shares collapsing more than 25% last month. Afterpay has also been facing some increased regulatory concern, pushing its shares are down over 20% in October.

This has also perhaps had a positive effect for Xero, as growth investors jump ship for better shores.

Is Xero a buy today?

Xero is perhaps one of the best growth stocks on the ASX, but bear in mind the company has yet to become consistently profitable. I think waiting for a share price pullback might be a better way to seek exposure to Xero if you have yet to open a position, but there’s no doubt this is a quality company.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, WiseTech Global, and Xero. The Motley Fool Australia has no position in any of the stocks mentioned. 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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