The XERO FPO NZX (ASX: XRO) just hit a new 3-year high of $25.95, a level not seen since May 2014, when the company was in the middle of a long slide from $37 down to $12 in 2015.
Why are shares rising?
Xero's turnaround occurred for a couple of reasons, I think primarily because the company forecast that it would reach break-even in the 2018 financial year. Second, strong growth has continued even in the home ANZ market, while the UK business is well on its way to eclipsing ANZ in the next couple of years. Third, the company has announced an intention to expand into new geographies including South Africa and Singapore.
Fourth, it could be rising because of its rapid market share grab from competitors like Myob Group Ltd (ASX: MYO) and Reckon Limited (ASX: RKN). Or at least, these companies' share prices could be falling because of fears about competition from Xero.
Is Xero still cheap?
A more important question is whether Xero is still an opportunity at today's prices. I think that it is, and I wrote this piece on Monday showing how Xero could still be a bargain, if investors take into account its customer base and its heavy spending on growth. Competition is intensifying, and I don't think Xero is a guaranteed winner by any means – I think it's fairly high risk. Even so, it has a lot going for it, and I remain a happy shareholder.
