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Why the Xero share price can crack $100 per share in 2020

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The Xero Limited (ASX: XRO) share price surged to a new record high of $98.49 on Monday. Here’s why I think it can surge past $100 per share in 2020.

Why the Xero share price is at an all-time high

Unlike many other ASX companies, the August earnings season is not the catalyst for Xero’s latest share price surge.

In fact, Xero isn’t expected to report its half-year results until 12 November 2020. That means there are other factors pushing the Xero share price higher and the biggest is momentum.

Xero is part of the ‘WAAAX’ group of ASX tech shares that are currently rocketing higher. That includes Afterpay Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC) shares.

Afterpay shares surged to a new record high of $83.00 per share on Monday while the WiseTech share price jumped 34% in one day after a strong full-year earnings result last week.

I think the strong tech performance has drawn investors towards Xero shares, despite no announcements.

Clearly, it’s also got a solid business underpinning this growth. The Xero share price has rocketed higher for a number of years on the back of strong subscriber acquisition and retention.

The coronavirus pandemic has weighed on Xero’s operations in the early part of FY21. However, Xero’s annual meeting update on 13 August reported total subscribers of 2.38 million as at 31 July 2020. That includes 96,000 in net subscriber additions in the first 4 months since 31 March.

I think the strong focus on cloud accounting is tailor-made for the changing working environment this year. Xero continues to sign big clients and develop its platform with a focus on usability and scalability.

The company’s financial growth is astronomical, including a 30% jump in FY20 operating revenue to $718.2 million. Revenue and subscriber numbers are strong across Australia, New Zealand, the United Kingdom, North America and the Rest of World segments.

That has underpinned the strong Xero share price run and I think it can crack $100 per share this year. Xero appears to be in a great spot to increase its value with smart strategy execution in the short to medium-term. 

What’s not to like about Xero?

The one thing to be a little hesitant of is the lofty price-to-earnings (P/E) valuation. The Xero share price trades at a P/E ratio of 4,652.3 – that’s a lot to pay for future earnings.

That could make investors wary of buying in, especially at an all-time high. However, these are extraordinary times and Xero is a high growth company.

That means the Kiwi software group is worth watching ahead of its 12 November half-year earnings release for any major changes to the current trajectory.

These 3 stocks could be the next big movers in 2020

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