Shares of Xero Limited [ASX:XRO] have managed to surpass their price record today, clocking in at just over $53 at time of writing. They are up 42.85% for their one-year return and have climbed $1.86 since today’s market open.
Xero is a cloud-based accounting software that offers anytime/anywhere access to accounts on any device. The program is used by accountants and bookkeepers to ‘build a trusted relationship with small business clients through online collaboration’.
The company currently has over 2,300 employees and upwards of 1.5 million subscribers. Xero claims they ‘lead the New Zealand, Australian, and United Kingdom cloud accounting markets’, with Forbes identifying the company as the World’s Most Innovative Growth Company in 2014 and 2015.
What Xero has to offer
CPA Practice Advisor — a media outlet for tax and accounting professionals — gives Xero a rating of 4.5/5 stars in terms of its useability and features.
According to CPA Practice Advisor:
‘Xero easily handles multiple transaction types including online invoicing, inventory management including adding and editing inventory totals, electronic bank reconciliation capability, bill payment, fixed asset tracking, sales tax calculation, cash receipts, and customer quotes.
‘Xero can be a good fit for smaller organizations that are not currently managing multiple funds, projects, or grants.’
As of 10 April, Xero also offers a new payroll-only plan to companies with less than four employees, to ‘get you ready’ for the Single Touch Payroll (STP) legislation that will be active from 1 July 2019.
Under the legislation, businesses with less than 20 employees will now have to submit payroll information to the ATO each day.
At just $10 a month, Xero’s STP service for companies with up to four employees will be applicable to 400,000 small businesses, according to ATO figures.
In their H1 FY19 investor presentation, Xero reported a 37% increase in operating revenue to $256 million, as well as a 41% increase in gross profit. Their operating cash flow also increased by $20.9 million compared to H1 FY18.
Is there future potential for Xero’s Share Price?
Xero also underwent a US$300 million convertible notes issue (where investors receive equity rather than return plus interest for their investment). The company did this to get the ‘right balance between costs of funds and potential shareholder dilution’.
From this, Xero CEO Steve Vamos believes the company is now ‘very well positioned to take advantage of organic growth opportunities…we have the financial flexibility to target complementary acquisitions and investments’.
Furthermore, Xero’s target market of small businesses may prove to be a very lucrative sector if the coalition win the next Federal election.
Today, Prime Minister Scott Morrison announced a $100 million Australian Business Growth Fund, aimed at establishing 250,000 small Aussie businesses in the next five years.
If such an initiative comes to pass, this could mean a massive expansion in Xero’s target market.
That being said, Xero’s FY19 results are scheduled for release on May 16. So it may be wise to wait out until then to see if the company is still moving in the right direction.
For Money Morning
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