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Xero hits another record high

Tech stock Xero, which hit a record high yesterday, can still rise higher, one analyst says.

The cloud-based accounting services company, which dual listed in Australia (ASX: XRO) last Thursday, jumped 50 cents on the NZX yesterday (NZX: XRO) to hit a record high of $6.30.

Xero started the year at $2.76.

Earlier today, Hamilton Hindin Greene director Grant Williamson told NBR ONLINE the Australian listing might push the price up "a little bit" further.

By 5pm he was proved right, with the stock lifting another 7 cents to $6.37 on trade of more than $920,000 – valuing the company at $683 million.

Mr Williamson says a lift in price was expected from the ASX listing but the degree of the rise was surprising.

"It's a relatively tightly-held stock so as you get more buyers, and you've now got the Australian buyers interested. It's just pushing that price up when there's not a lot of selling around."

Trading volumes in Australia were initially low – with 70,781 shares traded on its first day last Thursday and 62,378 shares on Friday. Yesterday 127,287 shares changed hands.

"This company hasn't turned a profit but they have been concentrating purely on the top line and selling product," Mr Williamson says.

"As the revenues gain a lot of scale then you would expect that to flow through to the bottom line."

Banking on hefty profits

Questions have been asked this year whether Xero is worth half a billion dollars, especially compared to other tech stocks.

Mr Williamson says similar companies would eventually trade on a price-earnings ratio of 10 or slightly more.

Given Xero's market cap of $675 million today, he says that equates to earnings of more than $60 million.

"Investors are obviously very confident it is going to produce some hefty profits in due course."

Forsyth Barr analyst Andrew Harvey-Green says a dual listing was unlikely to have a negative impact.

He says shareholders who bought early and are looking for a short-term profit might consider exiting because of the record share price. However, some shareholders will be in for the long haul.

"Xero's at the very early stage of its development. If it's able to achieve its goals and get well above one million customers, today's share price will look relatively low."

More by David Williams

Comments and questions
3

Lok at Xero and learn NZ. Innovation, sound marketing and some strategic foresight. Its this rather than the slash and burn dumbness of our existing business practices that is needed.

No doubt that the Xero team have built a good product and are fantastic marketers. But can they show themselves as good managers able to commercialise the product and produce a profit - that word which seems to be a distant prospect.

Until they do they will never be accepted as mainstream, just high risk and further dilution is likely as capital is chased to cover ongoing losses. I think a profit is 5 years away which makes the current market cap look too inflated and pumped.

Way to go Xero, sticking to the plan, the Australian Accountants wanted 'in' and you made it happen for them.
Profit - it will come for the company - in the meantime - 3000+ partners around the globe are making HUGE profit - thank you thank you.
Mainstream bookkeepers and accounting practices are accepting Xero with open arms - I'm sure you have a heap of pages to list us all (btw thanks for the free advertsing!) Cheers