Is it time to buy Xero shares?
The post The Xero (ASX:XRO) share price is down 10% this week, is it a buy? appeared first on The Motley Fool Australia. –
The Xero Limited (ASX: XRO) share price is continuing its poor run on Wednesday.
In afternoon trade, the cloud accounting platform provider’s shares are down almost 4% to $135.16.
This latest decline means the Xero share price is now down 10% this week.
Is the Xero share price in the buy zone?
One leading broker is likely to see the weakness in the Xero share price as a buying opportunity.
According to a recent note out of Goldman Sachs, its analysts have a buy rating and $165.00 price target on the company’s shares.
This pullback means there could be 22% upside for the Xero share price over the next 12 months.
Why does Goldman like Xero?
Goldman Sachs is bullish on the Xero share price due to its belief that the company is well-placed for growth over the coming years.
In fact, the broker expects the company’s revenue to double between now and FY 2024. It expects this to be driven by increases in subscriptions, its average revenue per user, and acquisitions.
The broker commented: “We expect XRO revenue to double across FY21-24E (+26% CAGR), driven by: (1) ARPU growth from the recently announced price rises (benefiting FY22/23E) and the introduction of this app store fee (benefiting FY23/24E); (2) Subscriber growth, given accelerating subscriber growth across all geographies in 2H21, and strong recent traction from its Enterprise strategy (i.e. recently signed a Global partnership with DFK, the 7th largest Global Accounting Association, to complement agreements with BDO/RSM); and (3) M&A, with the Planday acquisition to contribute +3% growth in FY22E.”
In addition, Goldman sees a huge opportunity for Xero to monetise its app ecosystem. This follows the recent launch of the Xero App Store.
Its analysts said: “Although the quantum of app attachment rates is uncertain, we estimated that a 15% app store fee could open up an incremental NZ$1.4bn of TAM, with these earnings likely to be 100% margin.”
All in all, the broker believes the Xero share price is good value at this level. Especially given its positive long term growth outlook.
Should you invest $1,000 in Xero right now?
Before you consider Xero, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Xero wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.