Xero Limited’s (ASX:XRO) Shift From Loss To Profit

Xero Limited’s (ASX:XRO): Xero Limited, together with its subsidiaries, operates as a software as a service company worldwide. The AU$6.07b market-cap company announced a latest loss of -AU$27.84m on 31 March 2018 for its most recent financial year result. The most pressing concern for investors is XRO’s path to profitability – when will it breakeven? Below I will provide a high-level summary of the industry analysts’ expectations for XRO.

View out our latest analysis for Xero

Expectation from Software analysts is XRO is on the verge of breakeven. They anticipate the company to incur a final loss in 2018, before generating positive profits of AU$12.87m in 2019. XRO is therefore projected to breakeven around a couple of months from now! How fast will XRO have to grow each year in order to reach the breakeven point by 2019? Working backwards from analyst estimates, it turns out that they expect the company to grow 53.70% year-on-year, on average, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

ASX:XRO Past Future Earnings June 13th 18
ASX:XRO Past Future Earnings June 13th 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.

One thing I’d like to point out is that XRO has managed its capital judiciously, with debt making up 0.33% 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 key fundamentals of XRO which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at XRO, take a look at XRO’s company page on Simply Wall St. I’ve also compiled a list of key aspects you should look at:

  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.