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The Xero (ASX:XRO) share price is at a new all-time high. Here’s why

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The Xero Limited (ASX: XRO) share price has hit a new all-time high today. XRO shares started the day at $111.46, but, at the time of writing, have climbed 4.89% to a new high of $112.74. This move caps off a stellar week, month and 6 months for Xero shares. Over those periods, the Xero share price has climbed 8.66%, 17.4% and 53.33% respectively.

So what’s going in with this WAAAX company?

Who does Xero do?

Xero is a New Zealand-based online accounting software company that has made a name for itself as one of the ASX’s hottest growth shares in recent years. This distinction has earned Xero a place in the WAAAX club – the ASX’s hottest tech growth shares. Along with the other WAAXers like Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC), Xero has impressed in recent years with its scalable business model and rapid acquisition (and retention) of customers.

In its FY2020 earnings report that the company released back in May, Xero reported a 30% increase in revenue for the year, alongside an 88% increase in earnings (EBITDA) and a 26% rise in subscribers to 2.285 million. Looking at these numbers, it’s not hard to see why investors are attracted to Xero right now, especially since subscriber numbers have now hit 2.38 million since May. Not bad for a year with a global pandemic as well as a severe recession.

Why is the Xero share price ballooning?

Despite the strong rises in the Xero share price in recent days and weeks, there has been no real news coming out of the company to elicit such a reaction.

Saying that, the company did tell investors on 1 October that it has put the finishing touches on the acquisition of private Australian invoice lending company Waddle. First announced back in August, the Waddle acquisition is something that Xero CEO Steve Vamos is very excited about. Here’s some of what he had to say at the time:

The acquisition of Waddle is an important step in our strategy to help small businesses better manage cash flow and gain access to working capital. Waddle’s lending platform has the potential to enable a wide range of banks, fintech and other lenders to better support small business financial needs. We’re excited about the benefits Waddle can bring to many of our customers and banking partners.

In my view, the acquisition news, as well as general positive sentiment surrounding this growth company are what’s behind the new all-time high for the Xero share price. This is a company with undeniable strength and a long growth runway. That is exactly the kind of investment that investors find extremely appealing in a year of uncertainty.

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Returns as of 6th October 2020

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