Stock Analysis

Is Now The Time To Look At Buying Xero Limited (ASX:XRO)?

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ASX:XRO
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Xero Limited (ASX:XRO), is not the largest company out there, but it saw a decent share price growth in the teens level on the ASX over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Xero’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Xero

Is Xero Still Cheap?

According to my valuation model, Xero seems to be fairly priced at around 12.55% above my intrinsic value, which means if you buy Xero today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is A$74.08, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Xero’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Xero?

earnings-and-revenue-growth
ASX:XRO Earnings and Revenue Growth September 3rd 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With revenues expected to grow by 83% over the next couple of years, the future seems bright for Xero. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in XRO’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on XRO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

It can be quite valuable to consider what analysts expect for Xero from their most recent forecasts. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

If you are no longer interested in Xero, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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About ASX:XRO

Xero

Xero Limited, together with its subsidiaries, operates as a software as a service company in New Zealand, Australia, the United Kingdom, and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth4
Past Performance0
Financial Health5
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet with reasonable growth potential.