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Is the Xero (ASX:XRO) share price a cheap buy?

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The Xero Limited (ASX: XRO) share price has been surging in 2020. However, the recent tech rout has seen shares in the accounting software group fall lower.

So, is now a good time to buy into the ASX tech share for a cheap price?

What does Xero do?

Xero is a New Zealand based tech company that provides an accounting software platform for small and medium-sized businesses.

The company was founded in 2006 and now boasts a market capitalisation of $13.6 billion on the ASX. It is also part of the ‘WAAAX’ group of top ASX tech shares.

How has the Xero share price performed?

Shares in the Kiwi tech group are up 19.7% this year compared to a 10.2% decline in the S&P/ASX 200 Index (ASX: XJO).

The Xero share price has been rocketing higher in recent years and even peaked above $100 per share. In the last 5 years, shares in the tech group have climbed 651.0% higher to cement Xero as a top growth share.

That came on the back of strong customer acquisition and retention. In fact, Xero continues to grow quickly as it looks to expand both organically and inorganically.

The company recently announced the acquisition of small business lender, Waddle, for $80 million to accelerate its growth.

Xero is also eyeing off further international growth in key offshore markets.

Why is the Xero share price under pressure

Investors are a little jumpy at the moment to say the least. Massive government stimulus and expansionary monetary policy have helped boost share prices higher.

That’s despite the coronavirus pandemic which is weighing on the global and domestic economies. However, market volatility returned late last week as United States tech stocks were hammered on Friday.

That was reflected in the Aussie market as well with the Xero share price falling 7.3% lower since Thursday’s open.

One of the issues facing investors is that these lofty valuations, including Xero’s 4,437.5 price-to-earnings (P/E) ratio, are based on future growth.

That’s hard to value at the moment but no investor wants to bail and miss out on potential gains.

Is now a good time to buy?

The Xero share price is not a great bargain on a relative value basis. When times are tough, I think ASX dividend shares can provide some comfort.

It’s a tough market out there right now and I think the long-term growth story is still good for Xero. If I’m buying and holding for decades ahead, then I think it’s never a bad time to buy a portfolio company.

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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 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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