Next weeks sees the releases of XRO's interim earnings for 2015. This update will be key to the future performance of the stock. The 1H15 update disappointed investors with its US growth adding only 4k customers over the quarter and taking its total to 22k. Its remaining core markets (NZ/AU/UK) were largely inline to slightly improved on he company's initial estimates. Since the update the stock has slide 17.5% and is tribute to the importance of its US business to the overall performance of the company.
Since then we have received XRO's quarterly cash flow update which was a considerable improvement to its previous quarter. Staff costs remained constant at circa 19mio while the company managed to grow its revenue for the quarter by 20% to 28mio. However the despite the improved performance the market remains fixated on punishing the company for missing its US targets with the stock remaining under selling pressure and lingering nears its YTD.
In my opinion the market has been too abrupt in assessing the success of the company's US venture. XRO is essentially a start up company and investors can expect lumpy and patchy growth. A single quarter of disappointing growth does not equate failed venture and it is not unreasonable to expect growth to correct in periods going forward. Its cash flow update supports this point (growing 20%) and the addition of Monchilla (US online payrolls company) will boost its presence going forward.
With the interim 2015 update next week and the stock lingering near its lows, growth numbers materially exceeding current estimates will see the stock retrace a lot of the lost ground for the year.
XRO Price at posting:
$15.45 Sentiment: Buy Disclosure: Held
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