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Why the Xero share price is at a new record high

asx shares higher
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It has been another very positive day of trade for the Xero Limited (ASX: XRO) share price.

This afternoon the cloud-based business and accounting platform provider’s shares continued their incredible run and reached a new record high.

When the Xero share price reached its new high of $96.56, it meant it had gained 76% from its March low.

It also means that the high-flying tech company’s shares are up 57% since this time last year.

Why is the Xero share price storming higher?

Today’s gain has been driven by particularly positive investor sentiment in the tech sector on Tuesday following strong gains on Wall Street’s Nasdaq index overnight.

It isn’t just Xero pushing higher. The likes of Altium Limited (ASX: ALU) and Nearmap Ltd (ASX: NEA) are also storming notably higher and have helped drive the S&P/ASX 200 Information Technology index 5.1% higher this afternoon.

But that only explains today’s gain. Investors have been buying Xero’s shares consistently over the last 12 months.

Why else is Xero charging higher?

Investors have been fighting to get hold of Xero’s shares after it continued to deliver strong growth across key metrics in FY 2020.

For the 12 months, Xero delivered a 30% increase in operating revenue to NZ$718.2 million and a 29% jump in annualised monthly recurring revenue to NZ$820.6 million.

This was driven by an increase in its average revenue per user metric and a jump in total subscribers by 26% or 467,000 to 2.285 million subscribers.

Xero also started to display further benefits of scale. Although its revenue increased 30%, its earnings before interest, tax, depreciation, and amortisation (EBITDA) lifted 52% to NZ$139.17 million for the year.

The benefits of scale were even more evident on the bottom line, where Xero posted its maiden net profit. Xero’s profit after tax came in at NZ$3.34 million for the year, compared to a loss of NZ$27.14 million a year earlier.

Is it too late to invest?

Although Xero’s shares aren’t cheap, I still believe they could be great long term investment options.

Management estimates that less than 20% of the English-speaking addressable cloud accounting market has adopted cloud platforms. This gives it a huge runway for growth over the next decade. It also has the opportunity to expand into other non-English speaking regions in the future to drive is growth further.

Overall, I feel this means Xero shares have the potential to deliver strong returns for investors throughout the 2020s.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium, Nearmap Ltd., and Xero. The Motley Fool Australia has recommended Nearmap Ltd. 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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