Sharemarket meteor Xero yesterday surpassed an annual 500% gain to its share price, up more than 10% again yesterday, to close at $37.30.
First New Zealand Capital yesterday released its first research note on Xero, valuing it 38% above Tuesday's closing price of $33.15 - putting a target price of $45.70 on the cloud computing company.
At $37.30, Xero's market capitalisation stood at $4.75 billion, to become the country's second-largest listed company, trailing Fletcher Building by $1.75 billion, but ahead of Auckland International Airport and Telecom.
Craigs Investment Partners broker Peter McIntyre said trading was ''brisk'' yesterday, at 677,000 shares changing hands during the day.
The New Zealand Herald reported First NZ analyst James Schofield said while it was valid to compare Xero with New Zealand's largest listed companies, international investors saw Xero in a global context and were comparing it with global technology companies.
The largest of its rivals is Intuit, a United States firm with a valuation of $US20 billion. Others were Salesforce, worth US$31.8 billion, and Workday, worth $US13 billion.
''Those companies are all much further down the track. But that is the framework that international investors look at this company from.
''If you look at the US, where Xero is only just beginning, that market is 64 times the size of New Zealand.''
However, Xero came with significant risks and should be seen as a speculative stock. It faced a range of potential challenges including internet security, managing growth, key person risk, attracting talent and funding, his research note said.
''Given the recent share price rally, there are great expectations and they will need to succeed.''
He said the company needed to justify its share price.
''That is why it's a risky investment.''
Mr Schofield said he believed part of the reason for Xero's recent share price rally was a Bloomberg TV interview with Xero's US president Jamie Sutherland, last Friday.
