3 compelling reasons to buy Xero shares right now

A smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFsA smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFs

New Zealand accounting software provider Xero Limited (ASX: XRO) made many Australians wealthy last decade with a spectacular explosion of its share price.

But after topping the $150 mark in late 2021, the great technology sell-off over the past 18 months has been very unkind.

Xero shares are now trading at around the low $90s, as the business grapples with an investment market that no longer tolerates “growth at all costs” models.

So why would you buy Xero shares right now?

Here are three reasons you might consider:

1. Change in focus 

New chief executive Sukhinder Singh Cassidy started at Xero in February. Already by early March, she had changed its course.

For over a decade, the cloud software maker had been about gaining as many new customers as possible.

But Singh Cassidy announced that this relentless pursuit would now slow, in order for Xero to cut costs and become more profitable.

“As we aspire to build a higher performing global SaaS company and to enable Xeroʼs next phase of growth and drive better customer outcomes, we need to streamline and simplify our organisation,” she said in March.

“These changes, and our decision to reinvest in key strategic areas, will adjust our operating cost base as we balance growth and profitability, while taking a robust approach to capital allocation that supports long term value creation.”

The market has been a massive fan of this pivot, with the share price up more than 17% since that day.

2. Interest rate rises could be ending soon

One of the biggest reasons for the vicious sell-off in tech stocks has been the steep rise in interest rates since May last year.

But the torture is nearing the end, and that makes Shaw and Partners senior investment advisor Jed Richards bullish on Xero.

“Central banks may be nearing the end of interest rate tightening, as inflation shows signs of cooling,” he told The Bull.

“Consequently, expect a brighter outlook for the high-growth technology sector.”

3. Sticky product

A major plus for Xero is that its customers are in the business sector, rather than being end consumers.

Changing software used within a business is inconvenient at best and expensive at worst, both in terms of monetary cost and time wasted.

It’s not like a consumer switching smartphone apps.

This in-built client inertia is called “stickiness”, and Xero has a ton of it.

“Xero is a high quality cash generative business with impressive customer advocacy and duration,” read a recent Morgans memo.

“We see the current short-term weakness as a rare opportunity to buy a high quality global growth company at a discount to the lifetime value of its current customer base.”

The post 3 compelling reasons to buy Xero shares right now appeared first on The Motley Fool Australia.

Should you invest $1,000 in Xero Limited right now?

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Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Xero Limited wasn’t one of them.

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More reading

Motley Fool contributor Tony Yoo has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/w08q1eT

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