Investment Analysis of Xero Limited (ASX:XRO).

Abstract

Xero Limited is a global entity created and headquartered in New Zealand. It was first created in 2006 and has expanded into multiple markets as well as being listed in the Australian Stock Exchange. Xero Limited is a cloud based end to end complete accounting software solution provider for small to medium enterprise (SME) companies. Its uniqueness in product offering has led this organisation to be one of the fastest growing tech stocks that has outperformed all its competitors.

Xero Limited is accessible by application software around the world and online by mobile networks to any small to medium enterprise company. As noted in “sharecafe.com.au”: ‘Its cloud-based software system can integrate people with the exact numbers consistently on any device at any place’ (Sharecafe, 2021). Within Xero Limited’s Annual Report 2021, the company has stated 2.7 million subscribers with 300 connections to banks globally (Xero Limited Annual Report 2021). This indicates phenomenal growth is occurring worldwide. As mentioned on ASX: ‘Its objective is to create a socially responsible and environmentally sustainable business favouring its clients, advisors, communities, shareholders, and Xero employees’ (ASX,2021).

In this report, a review of the industry had been made before analysis for forecasting and as such Xero Limited has been growing greater than its industry as well as relative to its competitors. It has been indicated that they provide an end to end accounting software solution, this is unique within the market. Over the years Xero Limited will be able to grow further internationally from its current markets and will also be able to diversify offerings.

This report analyses Xero Limited valuation of finances and share price, after which a comparison is made on its current market share value to that of the fair market value that had been derived within this report. Xero Limited’s past five years of historical financial data has been reviewed to forecast the next five years and subsequently derive its free cash flows along with its discount valuation as of the end of its Annual Report 2021. This report concludes with a recommendation to whether the investor client should buy, sell, or hold shares.