Over the past two months, the Xero Limited (ASX: XRO) share price has gone up by approximately 20%. That's a quick rise considering the S&P/ASX 200 Index (ASX: XJO) has only gone up by 9%.
But, after this strong rise, is this ASX tech share an opportunity or has it gone too high to be worth buying?
Xero isn't the only one that has been going up in recent weeks. The Altium Limited (ASX: ALU) share price has also gone up by around 20%. While the WiseTech Global Ltd (ASX: WTC) share price has soared 55% over the last two months.
There is plenty of attention on ASX growth shares, with investors watching how inflation and rising interest rates may affect their bottom lines and valuations.
Xero is one of the biggest ASX growth shares with a market capitalisation of $13.6 billion, according to the ASX. So, is it a big opportunity?
What's the latest on the Xero share price?
The last price-sensitive bit of news out of the company came in May, it was the FY22 result.
But, last week, the company held its annual general meeting (AGM).
At that meeting, the company re-iterated its global aspirations and it sees "substantial opportunities for Xero's growth in the US, Canada and the UK, as well as further growth" in its more established markets of Australia and New Zealand.
The optimistic outlook
Management is "optimistic" about Xero's market opportunities with its pipeline. Xero said that cloud-based accounting is "fundamental to the success of small business". There is also a trend for governments wanting businesses to go digital, partly so that they can "collect revenues faster".
In FY22, Xero saw "continued top line momentum, double-digit subscriber growth and a further reduction of churn rates".
Xero reported that in FY22, operating revenue increased 29% to $1.1 billion and total subscribers grew by 19% to 3.3 million. In FY22, its churn was around 0.9%, meaning it kept more than 99% of its subscribers. This was an improvement compared to FY21 when the churn rate was just over 1%.
One of the main things that I've noted about Xero in recent months is that it is increasing prices for subscribers in Australia, New Zealand and the United Kingdom. This should help average revenue per user (ARPU), annualised monthly recurring revenue (AMRR), and hopefully the gross profit margin as well.
Is the Xero share price a buy?
While Xero shares have risen, they are still down by almost 40% for 2022.
I think it looks much better value now than last year.
The company has plenty to like about it in my opinion, with numerous pleasing financial measures that I've already mentioned. The gross profit margin of 87.3% is very high and allows Xero to reinvest a lot of the new revenue it receives into more growth.
Even now, it's certainly not cheap. However, it could easily make a lot of profit if it wanted to. The company is just choosing to reinvest its cash flow generated into more opportunities.
Xero chair David Thodey said to shareholders:
We are conscious that the market's view of high growth companies has changed over the last six months. This revaluation has impacted us in a similar way to our peers. I trust that you can see from our results, the fundamentals for your company remain strong and we remain positive about the opportunities ahead.
I think the company has plenty of global growth ahead of it. And this is why I think the Xero share price is a long-term buy today.
