As most ASX tech investors, and many other ASX investors in general, would have noticed, the Xero Limited (ASX: XRO) share price has had a cracking year. Back at the start of 2023, Xero shares were going for just over $70. But fast forward to today, and those same shares will set you back $108.80 each.
Yep, Xero shares are up 55.2% year to date. This cloud-based accounting software provider has also given investors a 54% return over the past 12 months, and is up more than 75% from its 2020 COVID lows.
Even over the past month, Xero has gained a rosy 10.5%.
As such, one could very accurately describe the Xero share price as one that doesn't seem to stop rising. We're all told to buy low and sell high. But in Xero's case, that has proved fairly difficult (well, the buy low part).
So are you missing out on Xero shares by not buying them, even after these eye-watering gains?
Well, that's a million-dollar question. And one with no easy answer. After all, this isn't the first time we've seen Xero hop on a rocket ship. Over 2020, Xero shares gained a massive 80%. But of course, on that occasion, Xero spent the next two years losing half of its value.
Check it out for yourself below:
So is this time different?
Are you missing out on the Xero share price?
Well, it's difficult to know for sure. But let me make a few observations. Xero is a company that has managed to grow both its revenue and subscribers at breathtaking rates. Over FY2021, the company pulled in $850 million in revenue, up 18% for the year. By FY22, this had grown 29% to $1.1 billion, and in turn, expanded again in FY23 by 28% to $1.4 billion.
Subscriber growth has also been consistently high. Xero's FY23 numbers had the company's subscriber base up 14% year on year to 3.74 million. FY21 and FY22 saw 20% and 19% growth respectively.
However, Xero is still running at a net loss. It did make a gross profit of $1.22 billion in FY23. But, given how much the company continues to spend on expansion, that figure was shrunk down to a $113.53 million net loss on its bottom line.
This is probably why we saw the Xero share price struggle between 2020 and 2023. Loss makers are a lot less attractive to hold when interest rates are rising.
Even so, it's clear Xero shares deserve to trade on something of a premium, given this impressive performance.
The legendary investor Warren Buffett likes to say that it's better to own a wonderful company at a fair price than a fair company at a wonderful price.
Given Xero's glowing history, and its tailwinds as a tech company expanding into a ripe-for-disruption sector (taxes and accounting), I would say that if you want to own Xero shares right now, and you don't already, there's no point in waiting around.
In my view, you are missing out by not buying. If Xero pulls off another 28% revenue rise for FY24, its shares might look cheap today in hindsight.
