Insights

Here’s why the Xero (ASX:XRO) share price could be a buy

There are quite a few reasons why the Xero Limited (ASX:XRO) share price could be such a good one to consider for the long-term.
The post Here’s why the Xero (ASX:XRO) share price could be a buy appeared first on The Motley Fool Australia. –

two people having meeting using laptop and tablet

The Xero Limited (ASX: XRO) share price could be a really good one for long-term investors to consider.

It’s certainly not cheap after an increase of 89% over the last year. Xero has been a strong performer since the onset of the COVID-19 pandemic and all the associated impacts.

The business has been very effective at growing in its local markets of New Zealand and Australia. Now it’s taking on the world.

Xero still has a very promising growth-focused future and the Xero share price could still represent good long-term value today:

International subscriber growth

There not many ASX shares that have been able to expand overseas very effectively. There have been some painful expansion attempts from Wesfarmers Ltd (ASX: WES), Insurance Australia Group Ltd (ASX: IAG) and Slater & Gordon Limited (ASX: SGH).

But Xero is doing it the right way with fast growth of its international subscriber base. The diversification of earnings is useful and it will allow Xero to invest more into those regions as they become more important to the overall business.

Xero’s most important market is Australia, which now has over 1 million subscribers. The ATO single touch payroll initiative and the roll-out of jobkeeper stimulus payments by the Australian Government contributed to strong demand for Xero.

Other regions are also displaying attractive double digit growth. In the FY21 half-year result, UK subscribers grew 19% to 638,000 subscribers, with revenue rising 33%.

North American subscribers increased 17% to 251,000 and the rest of the world subscribers went up 37% to 136,000 with good growth in South Africa and Singapore.

Expanding product offering

Xero is heavily investing in its product offering for clients. Not only does it have its own development teams to make the technology even better, but it’s also acquiring other businesses to offer to its subscribers.

The most recent acquisitions are called Tickstar and Planday.

Tickstar is an e-invoicing infrastructure business that enables organisations to connect to a global e-invoicing network. Xero said that Tickstar technology will enable customers in Australia, New Zealand and Singapore to have access to faster and more secure transactions. It’s based in Sweden and already serves customers in a number of markets around the world.

The other acquisition is called Planday, which is a leading workforce management platform with more than 350,000 employee users across Europe and the UK. It integrates with Xero, other accounting solutions and third party workforce-related apps to deliver a real-time view of staffing needs and payroll costs. Planday can provide insights that help adjust staffing levels to match trading conditions and control labour costs.

As Xero expands and improves its product offering, it should be able to attract and retain subscribers.

Very scalable

Xero is still heavily investing for growth, which should lead to good outcomes over many years.

The FY21 first half result for the six months ending 30 September 2020 showed how profitable Xero can be if it were trying to control its costs.

HY21 operating revenue increased 21%, or NZ$71,179,000, to NZ$410 million. Xero has a very high gross profit margin of 85.7%, which can help profit increase quickly.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 86%, or NZ$55,915,000, to NZ$120.8 million. Net profit after tax (NPAT) increased NZ$33,150,000 to NZ$35.5 million and free cash flow went up NZ$49,439,000 to NZ$54.3 million.

The improvement of those profit measures are strong, at a high margin. That could be very attractive if it’s a sign of what Xero can deliver in the future when it’s not investing so heavily.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Here’s why the Xero (ASX:XRO) share price could be a buy appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!