Motley Fool Australia

Is the Xero share price in the buy zone right now?

Broker recommendations sell shares
Image source: Getty Images

The Xero Limited (ASX: XRO) share price has recovered strongly from its fall during the early phase of the coronavirus pandemic. The Aussie fintech’s share price is now trading at levels similar to and above those seen in mid-February prior to when the pandemic hit.

Xero has had spectacular growth on the ASX over the past three and a half years. The Xero share price has increased from under $18.00 at the beginning of 2017, to now be trading at $91.70. Xero continues to grow strongly in its core home markets of Australia and New Zealand, while focusing on a strong growth trajectory overseas.

Is the Xero share price a buy right now?

Compelling business model

Xero is an online accounting software provider for small businesses. One of Xero’s key competitive differentiators is that its software packages are affordable and user-friendly. This makes them ideal for small businesses. In comparison, some of its competitors’ products can be expensive and more complex to use.

Xero continues to evolve its business model beyond just being a cloud accounting platform. Small business owners are now increasingly relying on Xero to manage not only their finances, but their entire businesses. Xero now offers comprehensive tools and services that cater to a diverse range of business management requirements. For example, the Xero platform can connect with an impressive number of financial institutions. This includes global fintech companies as well as a wide variety of third-party apps. This provides users with a central hub that allows them to easily access the relevant data and tools they require in the running of their businesses.

Strong recent financial performance

Xero’s strong track record of robust financial growth has continued into FY 2020. For the 12 months ending 31 March 2020, revenue increased very strongly by 30% to NZ$718 million. This growth was driven by a 2% increase in average revenue per user. Overall subscribers also continued on their upward trajectory, increasing by 26% to reach 2.29 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) growth was even more impressive. It increased by a massive 52% to reach NZ$139 million. Xero also pleasingly achieved a positive net profit for the first time in its history.

Foolish takeaway

With a strong recent rise, the Xero share price may appear expensive compared to many of the shares on the S&P/ASX 200 Index (ASX: XJO). However, due to its very strong, long-term growth potential, it remains in my buy zone. I believe there is a long runway for growth ahead of Xero over the next decade, especially driven by expansion in the United Kingdom, North American and other global markets.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Phil Harpur owns shares of Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of 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.

Related Articles…