Xero Share Price Soars at the Open Followed by Quick Sell-Off

Back in late August, we reported on a milestone moment for Xero Ltd [ASX:XRO]. Right as the tech superstar hit the $100 per share mark for the first time.

Today, the Xero share price has furthered that feat, continuing its 2020 dream run. Peaking at $130.95 during the opening minutes of trade on the ASX this morning. A fresh 52-week high for the stock.

That was a 6.7% gain for the day — if demand held.

It wasn’t to be though, with investors no doubt taking profit as shares settled around $123–122 by mid-afternoon. Amounting to a less than one percentage point gain.

So, what happened?

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Everything is up for Xero

The catalyst for Xero’s explosive open was its latest quarterly update. Showcasing a spectacular September quarter, if I do say so myself.

Year-on-year revenue was up 21% to NZ$409 million. With Xero’s total number of subscribers growing by 19% as well, to 2.4 million. Largely led by Australian users, who have passed the one-million mark. A first for Xero.

The real standout for the quarter though, was Xero’s earnings and profit.

EBITDA came in at a whopping NZ$120.7 million. Up 86% compared to this time last year. Undoubtedly booming on the back of cost-cutting mixed with ongoing sales growth. A testament to just how resilient this company has been during the pandemic.

Better still for investors, net profit for the period totalled NZ$34.4 million. A 26-fold increase on the NZ$1.34 million reported in September 2019.

Suffice to say, few companies are lucky enough to post that kind of performance during these trying times.

But it does beg the question if it has come at the cost of future growth. A possibility that CEO Steve Vamos was clearly trying to dispel:

This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero’s business model. We continue to prioritise investment in customer growth and product development in line with the long term opportunity we see.

During a difficult period, it’s pleasing to report we grew to exceed one million subscribers in both Australia and in our International segment.

The market may not have been as convinced though. As can be seen due to the rather large sell-off after the strong open.

So, for investors, the question must be: Is it time to cash out?

What’s next for Xero?

It is certainly a tough decision facing Xero shareholders. One that I do not envy.

Because either way, there are strong arguments for and against Xero’s growth prospects. Which is precisely why selling or holding is a matter that must be made with your own situation in mind.

It’s a great time to cash in on this overperforming stock. But don’t be surprised if it goes on to further heights either.

Xero has truly become a posterchild for NZ success.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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