Xero [ASX: XRO] / (OTCPK:XROLF) is a New Zealand-based company building a cloud accounting software for SMEs. Given its easy-to-use product, global presence, and strong company culture, we have always liked the business. As of today, the fundamentals have been strong and the stock still presents a solid investment opportunity. Over the years, the share price has steadily appreciated. However, the COVID-19 outbreak that has been impacting many SMEs globally will likely create pressure on the stock in the near-term. We are yet to find out the overall impact on Xero's business as we look forward to the second-half earnings release (H2 2020) on May 14. Therefore, there is a possible near-term entry point opportunity in and around the earnings date to pick up the stock at a bargain.
Xero is a highly attractive growth story. The company has great products, a global presence, and a strong corporate culture. It consistently posts 20%-50% growth across all of its markets. The stock has been up ~40% in the last twelve months as growth and profitability were strong as of H1 2020. Strong enhancements around the products also drove cash flow growth. FCF turned positive in H1 as the company generated $4.8 million of FCF. The stock already recovered from a ~34% drop from its TTM-high during the COVID-19 selloff in March. Given the ongoing impact still seen on SMEs in all markets, there is another near-term opportunity ahead.
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