An analyst says Xero has a great future and has performed very well so far but, at the current share price, investors aren't being compensated for the risk and uncertainty associated with the company.
Analyst at Forsyth Barr Andrew Harvey-Green valued the online accounting software firm's shares between $21.40 and $31.10, compared with the current share price of $40.50.
Mr Harvey-Green said the current share price assumed Xero will achieve a market share of more than 50 percent in the United States and more than 9 million customers overall.
Mr Harvey-Green estimated Xero ended last year with about 146,000 customers.
He said Xero did have the potential to get 9 million customers but it is still a risky investment proposition. He said the amount of cash Xero burned in the September quarter, $13.8 million, was less than he expected but he expects that will just be a lull as the company is planning to ramp up spending after raising $180 million in new capital during the December quarter.
Mr Harvey-Green forecast an operating loss of $42.5 million dollars for the year ending March, up from the $16 million it lost the previous year.