Is the Xero Limited (ASX: XRO) share price a buy after falling around 10% in a week?
The coronavirus has caused most of the share market to drop over the past couple of days as infections spread in Italy, South Korea and Iran.
So, why would Xero be good to consider?
Xero's cloud accounting software is an essential part of operating for business owners.
Financials and tax returns need to consider to be completed whether business is booming or stalled. Xero receives a very attractive monthly payment from its subscribers, which is a great source of cashflow.
Xero has a very high subscriber retention rate because of how affordable its product is and how helpful its cloud software is for business owners. All the tools, automation and integration are very powerful – why would subscribers want to look elsewhere?
The software business continues to grow very strongly, with growth now accelerating overseas too, particularly in the UK. In the half-year result to 30 September 2019 it saw subscribers increase by 30% to over 2 million, with UK subscribers jumping by 51% to 536,000.
There are very few businesses on the ASX that are growing so strongly simultaneously in Australia, New Zealand, the UK, North America, South Africa with early expansion in Hong Kong and Singapore.
Is it good value?
I think investors had sent the Xero share price a bit too high. Growth is hard to find in the market, any business displaying strong levels of growth was sent flying higher.
Xero is hard to value, just like Amazon. Xero isn't trying to make a profit, it's re-investing nearly all of the profit back into more growth and more features. It's hard to say when it will stop doing that, but it makes sense when it earns such a high margin – its gross profit margin was 85.2% at September 2019, which was an increase from 82.8% from the year prior.
Today may not be the best day to buy Xero over the next few weeks, it may keep falling this week and beyond but investors are being presented with a much better buying opportunity whilst there is fear in the market, and interest rates will continue to remain low during this period.
