The Xero Limited (ASX: XRO) share price has been a strong performer in 2020 despite the market volatility.
In fact, on Thursday the cloud-based business and accounting platform provider’s shares raced to a record high of $91.49.
When Xero’s shares hit that level, it stretched their year to date gain to just under 15%. This compares very favourably to a 10.5% decline by the S&P/ASX 200 Index (ASX: XJO) over the same period.
Why is the Xero share price at a record high?
Investors have been driving the Xero share price higher this year after it continued to deliver strong growth across key metrics.
In FY 2020 Xero delivered a 30% increase in operating revenue to NZ$718.2 million and a 29% jump in annualised monthly recurring revenue to NZ$820.6 million.
This was driven by increases in both its average revenue per user and total subscribers. The latter rose 26% to 2.285 million subscribers thanks to the addition of 467,000 net subscribers during the 12 months.
And due to the benefits of scale, Xero’s earnings grew even quicker. The company reported a 52% increase in earnings before interest, tax, depreciation, and amortisation to NZ$139.17 million.
It also recorded its first net profit. Xero’s profit after tax came in at NZ$3.34 million for the year, compared to a loss of NZ$27.14 million a year earlier.
Is it too late to invest?
While Xero’s shares certainly aren’t cheap, I would still be a buyer of them if you planned to invest with a long term view.
At the end of the year Xero had 2.285 million subscribers. Although this is a large number, it is still on a fraction of its addressable market. Management estimates that less than 20% of the English-speaking addressable cloud accounting market has adopted cloud platforms.
This means there is still a material market opportunity for the company over the next decade. And given the quality of its product, I expect it to capture a growing slice of this market over the long term and drive strong earnings growth.
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As of 2/6/2020
More reading
- 3 stellar ASX growth shares I would buy right now
- Are Megaport shares the ones to buy and hold beyond 2030?
- 3 large cap shares beating the ASX 200 this year
- Should the Xero share price have a P/E ratio of 4,000?
- 2 cheap ASX 200 shares to buy right now
James Mickleboro 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 has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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