By all accounts and measures, Xero Ltd (ASX: XRO) shares have been a wonderful investment for ASX stock market participants for many years now.
For one, the Xero share price has rocketed more than 3,300% since its ASX debut back in 2012, no doubt minting a few millionaires amongst its first investors.
For another, this cloud-based accounting software stock continues to deliver enviable growth numbers despite being close to two decades old.
Back in November, Xero reported a 25% increase in revenues for the six months to 30 September to NZ$996 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by an even more impressive 52% to NZ$312 million.
This company seemingly has everything going for it. Thanks to its nature as a software-as-a-service (SaaS) provider, it continues to add recurring revenue. Its global expansion is also looking promising, with NZ$271 million of its revenue for the half coming from the United Kingdom (up 26% year-on-year).
Back home, the Australian and New Zealand markets continue to form the foundation of Xero's success, contributing another NZ$458 million and NZ$109 million to that NZ$996 million revenue pool.
Xero's long-term future looks solid, given that we can probably expect our governments to keep requiring us to lodge and pay taxes every year for some time yet.
Yet I have a problem with Xero, one that has prevented me from buying this market darling's shares.
What's holding me back from buying Xero shares?
That problem is this company's greatest rival – Intuit Inc (NASDAQ: INTU). Intuit is America's own Xero. Founded in 1983, it essentially offers the same services as Xero, providing cloud-based accounting services via its popular QuickBooks platform.
Just as Xero is dominant in Australia and New Zealand, Intuit is also dominant in the United States and Canada.
Want proof? Well, Xero has a market capitalisation of $25.57 billion, while Intuit commands a US$162.29 billion ($258.05 billion) market cap. Yep, Intuit is more than ten times larger than Xero.
I believe this company is one of the primary reasons why Xero's growth in North America has failed to take off in the same way that it has in the UK and other countries.
Last month, Intuit told investors that it expects to grow revenues by 12% to 13% over the full 2025 year and operating income growth of 28% to 30%.
Given how complex the American tax system is compared to our own (many Americans have to pay both state and federal income taxes, for example), I think it's fair to say that Intuit has a home-field advantage 'Stateside'.
Yet the market is still pricing in a whole lot of growth for Xero. That's going off its current price-to-earnings (P/E) ratio of 124.7.
Foolish takeaway
Now, Intuit's North American dominance and size doesn't mean that Xero can't still succeed. If these two companies capture the lion's share of their global market over the coming decades and form a duopoly of sorts, it will still bring enormous success to Xero's investors.
However, I think the current Xero share price is a little too optimistic about its North American growth trajectory, which I think will remain the company's toughest nut to crack.
I'd love to buy Xero shares, as it is clearly a quality business that makes a product that consumers love. But I'll be waiting for a better entry point, preferably one with a P/E ratio well under 124.7.
