Xero's recent bull run has made it too rich for Jarden's blood.
In a research note released this morning, the wealth manager has downgraded the stock from outperform to neutral - although at the same time upping its 12-month target price from A$88 to A$111.
Jarden still sees Xero as a strong-performing market leader, but says at recent trading levels, its valuation has become "increasingly stretched".
Although down 1.4 per cent in early Thursday trading to A$115.08 (for a A$16.7 billion market cap), Xero shares are still trading at more than 21x revenue, making it "fully-valued" next to peers measured by the same metric, in Jarden's view.
On enterprise value-to-ebitda, Xero is trading at a 90.0x multiple, based on Jarden's estimate for its FY2021 earnings, compared to 16.5x for Sage, 26.4x for Intuit and an industry average of 21.5x.
If Xero hits its straps and manages sizeable ebitda gains by 2023, then Jarden still anticipates an EV/ebitda multiple of 47x, or nearly triple that of its peers.
As well as its $111 12-month target, Jarden offers a possible "blue-sky" scenario, where all stars align for the stock and it climbs to A$132 and a "grey skies" scenario where it sinks to A$93.30.
Not everyone is fazed by Xero's current valuation.
On October 10, with Xero trading at A$114.58, Harbour Asset Management portfolio manager Shane Solly told the Herald, "It's still one of our largest active investments. Covid is accelerating the move to digitisation across a lot of industries with Xero well-positioned."
Today, Solly did not want to directly speak to Jarden's predictions but did say, "We remain positive on Xero's ability to keep growing its total addressable market."
The now ASX-only cloud accounting firm has been on a tear since a mid-August update that revealed it was still adding subscribers, in all its major territories, despite pandemic lockdowns - if at a slower rate than 2019.
The latest surge was fuelled by an October 7 research note from RBC Capital Markets, which upgraded Xero to outperform and hiked its 12-month target price from A$92 to A$123.
RBC's target implied some heady multiples. Last year, Xero made a net profit of $3.3m and ebitda of $137.7m on operating revenue of $718.2m. RBC's team of analysts is picking ebitda of $179.7m for 2021 and $387.3m by 2023.
But RBC is picking there will be further stimulus spending that will keep small businesses (Xero's main target) relatively buoyant.
Jarden today noted that small businesses had held up better than expected, a number of government support measures, and extraordinary regulatory measures that allow distressed businesses to keep trading, mean it is difficult to get a clear picture of how SMBs are faring.
RBC saw Xero doing well in its "Battle for Britain" with Sage, based on Google Trends search results - which it, in turn, sees as indicative of what accounting software is catching the attention of would-be subscribers.
Ditto for Australia, where Xero is more searched-for than arch regional rival MYOB.
Jarden also noted the positive Google Trends data.
The only flat point in the Google Trends analysis is the US, where Intuit's Quicken remains the dominant household name and Googling for "Xero" has plateaued. Current chief executive Steve Vamos has put less emphasis on cracking North America than his predecessor Rod Drury - although Craigs Investment Partners research analyst Stephen Ridgewell - a Xero bear - recently told the Herald that the company would need a breakthrough in the US to justify its current valuation.
RBC found a second largely positive external indicator, too, saying "app download data continues to improve over recent months which augurs well for Xero subscriber growth".
While many use Xero's software via the web, analysts can track numbers for its iOS and Android downloads, which have lifted 3 per cent for the calendar year.
The UK - which accounts for about 20 per cent of Xero sales - is vulnerable to a second lockdown, but RBC sees stimulus spending and gains from Sage offsetting any impact.
RBC also noted that Xero has put off modest price increases, and offered more features for the same money in the meantime (for example, unlimited invoices rather than 20 per month with its Starter version) it has managed to avoid rivals' deep discounting and three months' free deals.
A lending service for hard times
For its part, Xero has not provided any earnings guidance for FY2021, citing Covid-19 uncertainty.
But the company has positioned itself for a rockier landscape with its A$80m purchase of invoice-financing startup Waddle in late August.
Waddle lets a small business take a quick secured loan against its accounts receivables - helping to tide it over until an invoice is paid.
In a market filing, Xero indicated the move could be part of a broader push into financing.
"Post the acquisition of Waddle, Xero will continue to explore how to facilitate small business access to capital beyond invoice financing," it said.