Up 53% in 12 months: Can the Xero (ASX:XRO) share price go even higher?

Can this high-flying share soar even higher?

| More on:
A man activates an arrow shooting up into a cloud sign on his phone, indicating share price movement in ASX tech shares

Image source: Getty Images

The Xero Limited (ASX: XRO) share price has been a strong performer over the last 12 months.

Since this time last year, the cloud-based business and accounting platform provider’s shares are up 53%.

Why has the Xero share price been on fire over the last 12 months?

The strong gain by the Xero share price over the last 12 months has been driven largely by the company’s impressive performance during FY 2021.

For the 12 months ended 31 March, Xero reported an 18% increase in revenue to NZ$848.8 million. This was driven largely by its Australian, UK, and Rest of the World operations, which all reported strong revenue growth year on year.

This strong top line growth was underpinned by a 20% increase in subscribers to 2.74 million. This reflects a 20% increase in ANZ subscribers to 1.56 million and a 21% increase in International subscribers to 1.18 million.

And thanks to the achievement of further operating leverage, Xero reported a 39% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$191.2 million.

Can its shares go higher?

One broker that believes the Xero share price may now have peaked for the time being is Citi.

According to a recent note, its analysts have retained their neutral rating and $135.70 price target on its shares. This compares unfavourably to the current Xero share price of $136.94.

While the broker is a fan of Xero and believes demand for its platform is increasing, it appears to believe its valuation is getting stretched.

Citi commented: “We see the demand backdrop for Xero as positive driven by improving SMB trends as economies open up, strength in business formation boosting new customer acquisition and low insolvencies/bankruptcies keeping churn in check. Further, FY22e revenue growth should benefit from the PlanDay acquisition (3% impact). However, with the stock trading on 19x FY22e revenue, we do not see the risk-reward as compelling and maintain our Neutral rating.”

Should you invest $1,000 in Xero right now?

Before you consider Xero, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Xero wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor 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 and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares