Xero Stock And 2 ASX Software Names Screening Cheap On Cash Flow

Global yields have started to soften on recent signs of cooler inflation, and that has pushed more attention back onto company fundamentals rather than short term rate moves. When the market focus drifts, cash rich businesses sometimes get overlooked. That is where the Undervalued Stocks Based On Cash Flows screener comes in. This article highlights three of the strongest looking stocks from that list.

The three stocks below are just a small sample of what screens well for cash flow value, with the full Undervalued Stocks Based On Cash Flows search surfacing 38 more companies with equally compelling stories that are not covered here. To identify and analyze the ideas that best fit your own criteria, head straight into the Undervalued Stocks Based On Cash Flows screener.

Xero (ASX:XRO)

Overview: Xero is a Wellington headquartered software company that provides cloud based accounting, payroll, payments and tax tools for small businesses and their advisers, along with add ons like employee scheduling, reporting, e invoicing and document capture. Its platform connects core finance tasks such as invoicing, bill payments and payroll with services like Planday, Hubdoc, Syft, Melio, TaxCycle and Tickstar across markets including Australia, New Zealand, the UK and the US.

Operations: Xero generates essentially all of its NZ$2.8b in revenue from providing online solutions for small businesses and their advisors, with Australia, the UK and the US its largest reported regions.

Market Cap: A$13.9b

For investors looking at cash flow driven value, Xero is a global small business platform that sits at the intersection of accounting, payments and AI. The company is priced for high expectations, with a rich P/E and modest current net margin of 6.1%. It is also flagged as trading well below a cash flow based fair value estimate and carries strong gross margins around 88%. Rapid product rollout around AI powered bookkeeping, Microsoft 365 integrations and new leadership hires point to an expanding feature set at a time when concerns about disruption are weighing on sentiment. The mix of solid revenue growth forecasts, low current ROE and recent earnings pressure creates a tension that can be attractive if the AI and efficiency story develops as anticipated.

Xero's rich P/E and low 6.1% net margin suggest expectations are high yet unproven, while cash flow value screens point in a different direction. See how that gap looks in the DCF valuation analysis for Xero

Build your own cash flow shortlist

Xero and the two other stocks in this article are all examples of what can surface when you start filtering for cash flow value. Use our flexible Screener to combine factors like valuation, growth expectations, balance sheet strength, risks and dividends, or jump straight into our curated Investing Ideas for ready made shortlists.

Lynas Rare Earths (ASX:LYC)

Overview: Lynas Rare Earths is a Perth headquartered miner and processor that produces a range of light and heavy rare earth elements used in electric vehicles, wind turbines and other high tech applications, with operations stretching from the Mt Weld mine in Western Australia to advanced materials plants in Kalgoorlie and Malaysia.

Operations: Lynas generates its approximately A$716 million in revenue from its Rare Earth Operations segment, which covers mining, concentration and advanced processing of rare earth materials.

Market Cap: A$16.5b

Lynas Rare Earths is involved in critical materials supply for EVs and renewable energy, and many investors monitor its growth and cash flows closely. On some cash flow measures, the stock has screened as undervalued, with analyst forecasts that point to strong earnings and revenue growth. At the same time, it faces pressure points around regulatory scrutiny in Malaysia, funding risk from reliance on external borrowing and exposure to policy shifts tied to its Pentagon supply deal. The company also has an integrated position outside China and has reported improving margins, which are contributing factors to current optimism among some market participants. A key consideration for investors is how these strengths compare with policy, execution and capital intensity risks as new processing capacity ramps up and government support is evaluated over time.

Growth expectations around Lynas Rare Earths and rare earth demand often grab the headlines, yet the cash flow story can be just as revealing. See how the market view stacks up in the analyst forecasts for Lynas Rare Earths

WiseTech Global (ASX:WTC)

Overview: WiseTech Global provides cloud based software that helps logistics companies manage the movement and storage of goods, from freight forwarding and customs clearance through to warehousing and transport. Its CargoWise platform and related tools support logistics providers across the Americas, Asia Pacific, Europe, the Middle East and Africa.

Operations: WiseTech Global generates its revenue from logistics software solutions sold internationally, with approximately US$450.7 million from the Americas, US$364.2 million from Europe, the Middle East and Africa, and US$254.8 million from Asia Pacific.

Market Cap: A$14.5b

WiseTech Global is attracting attention because it sits at the heart of supply chain software, yet the stock has been under pressure while the business pushes through a major reset. Analysts expect strong revenue and earnings growth ahead, supported by AI enabled products, the shift to a unified transaction based model and the large E2open acquisition, which together broaden its reach across the global supply chain. At the same time, net margins have fallen from 27.3% to 15.2% and organic growth has slowed. Integration costs, higher leverage and one off losses add real execution risk. If WiseTech Global can convert its larger footprint and heavy R&D spending into steadier cash generation, the rerating potential could be meaningful for patient investors.

WiseTech Global’s reset, with lower margins and slower organic growth, could be masking where the real opportunity lies. See how the growth story lines up with execution risk in the analyst forecasts for WiseTech Global

Seeking Alternatives Before The Crowd

Fresh stock ideas do not stay under the radar for long. Some could be building breakout momentum while others risk dropping off your watchlist before it matters, so consider acting promptly.

• Spot companies building quiet momentum across megatrends, then scan the curated 11 high quality undiscovered gems before the crowd catches the move and shrinks your opportunity set.
• Look for resilient cash generators that aim to participate in future AI spending by checking the focused 55 AI infrastructure stocks while they are still flying under wider market attention.
• Prepare for a possible shift in energy priorities by tracking the specialist 91 nuclear energy infrastructure stocks and reduce the risk of reacting only after early movers have already acted.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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