The Xero Limited (ASX: XRO) share price just hit fresh, all-time highs. The accounting software provider has been a standout performer on the ASX in 2019, with the company's share price doubling this year. At the time of writing, the Xero share price is trading 3.63% higher at $83.69.
Over the past 3 years, the stockmarket valuation of the company has risen by more than $9 billion to $11.38 billion. Here's why Xero is trading at all-time highs.
How has Xero performed in 2019?
Xero is the first cloud-based accounting platform for small businesses and accounting partners. The company's services allow for real-time bank feeds and boasts a subscription revenue stream that provides great growth potential.
In the company's recent half-year report, Xero saw a 30% increase in total subscribers of 2.06 million. In addition, Xero reported that its year-on-year annualised monthly recurring revenue jumped 30% to $764.1 million.
The Australian and New Zealand segment saw a 34% improved contribution to revenues, with international contribution positive for the first time. The majority of group operating revenue was driven by core accounting, with platform revenues rocketing 116% for the first half.
What is the outlook for Xero?
According to management, the long-term outlook for Xero depends on the company's ability to attract developers and grow its product base. Other factors of growth include partnerships with financial institutions and the electronic transition of taxation authorities like the ATO.
According to analysts, Xero has a plethora of growth opportunities from attracting new clients to selling more products to its current 1.8 million customer base. The total addressable market for Xero's software in the US is estimated to be around 6.3 million, dwarfing the UK market.
The company continues to focus on the growth of its small business platform and plans on reinvesting cashflows generated to drive long-term shareholder value. In addition, Xero looks to expand the company's machine learning and AI capacities in order to develop a seamless workflow and data integration. Cash flow for the financial year to 31 March 2020 is expected to be at a similar proportion to total operating revenue reported earlier this year.
Should you buy?
Xero has great potential to crack the $100 mark in 2020. Usually after such stellar runs, investors look to take profit which could pull the company's share price back. I think a prudent strategy would be to keep Xero on a watchlist and wait for an entry point you feel comfortable with, before making an investment decision.
