Xero Ltd (ASX: XRO) shares count among the top performers on the S&P/ASX 200 Index (ASX: XJO) in 2023.
Since the opening bell on 3 January, shares in the business and accounting software provider have gained a very impressive 62%, currently trading for $113.51 apiece.
But the ASX 200 tech share hasn't been immune to the broader sell-off impacting much of the market in September.
With Xero shares slipping today, the stock is down 9.4% this month.
Which could make now an ideal time to go bargain hunting.
Compounding shareholder value
Xero reported its FY 2023 results way back on 18 May.
Among the highlights, the ASX 200 tech company reported a 28% year-on-year increase in operating revenue, which climbed to NZ$1.4 billion.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$302 million was up 45% from FY 2022. And the company had free cash flow of NZ$102 million.
Xero shares closed up 8.9% on the day. At the time, CEO Sukhinder Singh Cassidy said, "We're positive about the multiple levers Xero has to deliver growth – including driving further adoption of cloud accounting and deepening customer engagement."
Technology analyst at DNR Capital Chris Tynan shares Cassidy's bullish outlook on Xero's growth potential.
According to Cassidy (courtesy of The Australian Financial Review), "Xero's dominant accounting product essentially became the plumbing of small enterprises, producing high barriers to entry, sticky switching costs and strong pricing power."
Well, those certainly are three compelling reasons to buy Xero shares now, particularly after the September retrace.
Cassidy added:
Xero's ability to continuously reinvest cash flows into high returning opportunities in large and growing global markets is uniquely attractive on the ASX. Despite this strategy resulting in a high headline multiple [of profits], the simple formula of user and pricing growth combined with targeted investment will compound shareholder value for years to come.
How have Xero shares performed longer term?
Xero shares performed particularly well in the falling interest rate environment from mid-2020 through to late 2021.
While shares in the ASX 200 tech are down 26% from their November 2021 all-time highs, investors who bought the stock five years ago will still be sitting on gains of 132%.
