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Why Xero Limited shares are storming higher today

The Xero Limited (ASX: XRO) share price has been amongst the best performers on the local share market on Wednesday morning.

At the time of writing the accounting software platform provider’s shares are up a sizeable 4% to a multi-year high of $39.75.

Why are Xero’s shares on the rise today?

With no news out of the company, today’s push higher appears to be related to a broker note out of UBS.

According to the note, UBS has upgraded Xero’s shares to a neutral rating from sell following a change of analyst.

While a neutral rating isn’t normally something to get excited about, the removal of the sell rating from one of the most influential brokers in Australia certainly is.

Furthermore, the broker has increased its price target up to $42.50, approximately 11% higher than its last close price.

The new analyst covering Xero believes that the company is transitioning from a loss-making tech company into a self-funding one with a proven business model and sizeable structural growth opportunities.

In addition to this, the broker has pointed to regulatory changes in the United Kingdom in FY 2019 as being a potential industry-changing event and a great opportunity for Xero.

Should you invest?

UBS may only have a neutral rating on its shares right now, but I remain confident that Xero would be a great buy and hold investment option due to the quality of its product and the strong long-term growth potential it has in key markets across the world.

And while its shares may be a little on the expensive side today, I believe that as it scales it will comfortably grow into its premium valuation.

In light of this, I would suggest investors buy its shares ahead of industry peers Myob Group Ltd (ASX: MYO) and Reckon Limited (ASX: RKN).

Where to invest $1,000 right now

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*Returns as of February 15th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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