Xero and Burger Fuel both closed at 80 cents on Friday. That a huge drop from the IPO prices of $1, and even further from XRO’s listing price of $1.10.
XRO
BFW
So – after a 20-28% drop, is it time to buy?
Let’s deal with Burger Fuel first.
No. Not at all. (That’s a “Sell”)
Shareholders are absolute minority investors behind the founders, and the IPO deal was never even close to being a good one for investors. Meanwhile BFW needs more cash at some stage, and existing investors will be squeezed down. Overall I would not touch it from a valuation or control point of view.
Now Xero.
I’m saying Not Yet. (That’s a “Hold”)
While most of the company is held by the founders, the quality of the board members gives me a much better feeling about control issues. However there is still the distinct chance that existing shareholders will be squeezed down by another financing round.
Xero’s numbers were always difficult to justify to me – not backed up by tangible evidence that they would deliver. The product is out now, but is still pretty basic. The question is now how fast they can roll out the improvements so that Xero is clearly superior to, say, MYOB.
The team assembled is a very strong one, and I’m impressed with the idea of the well attended, it seems, roadshows to accountancy firms.
So I’m waiting – and looking hard at the speed of feature development and, more importantly, the speed of adoption. Once that sort of data comes in, then I’ll use it to generate a at least partially fact based forecast and create a valuation.
