Xero Limited’s (ASX:XRO) Path To Profitability

Xero Limited’s (ASX:XRO): Xero Limited, together with its subsidiaries, provides platform for online accounting and business services to small businesses and their advisors worldwide. With the latest financial year loss of -NZ$69.06M and a trailing-twelve month of -NZ$46.22M, the AU$4.30B market-cap alleviates its loss by moving closer towards its target of breakeven. Many investors are wondering the rate at which XRO will turn a profit, with the big question being “when will the company breakeven?” Below I will provide a high-level summary of the industry analysts’ expectations for XRO.

Check out our latest analysis for Xero

According to the industry analysts covering XRO, breakeven is near. They expect the company to post a final loss in 2018, before turning a profit of NZ$12.29M in 2019. So, XRO is predicted to breakeven approximately a few months from now. What rate will XRO have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 72.40%, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:XRO Past Future Earnings Feb 28th 18
ASX:XRO Past Future Earnings Feb 28th 18

I’m not going to go through company-specific developments for XRO given that this is a high-level summary, though, bear in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before I wrap up, there’s one aspect worth mentioning. XRO has managed its capital prudently, with debt making up 1.62% of equity. This means that XRO has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of XRO to cover in one brief article, but the key fundamentals for the company can all be found in one place – XRO’s company page on Simply Wall St. I’ve also compiled a list of important aspects you should further examine:

  1. Valuation: What is XRO worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether XRO is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Xero’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.