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Top broker upgrades Xero Limited (ASX:XRO) shares: Should you invest?

The market may be on course to start the week with a decline, but the same cannot be said for the Xero Limited (ASX: XRO) share price.

In afternoon trade the accounting software company’s shares are up 2% to $41.74. At one stage the company’s shares were as much as 3.3% higher at $42.32.

Why are Xero’s shares on the rise on Monday?

With no news out of the company, today’s gain is likely to be attributable to a broker note that hit the wires this morning.

According to a note out of Ord Minnett, the broker has upgraded Xero’s shares to a buy rating from lighten. In addition to this, its analysts have bumped their target price on the company’s shares up from $42.00 to $48.00.

Based on its last close price of $40.98, Ord Minnett’s price target implied upside of over 17% for its shares over the next 12 months.

The broker made the move after the Xero share price underperformed its global peer group during October and fell to what it considers to be an attractive entry point for investors.

In addition to this, its analysts appear confident that later this week the company will report solid subscriber growth when it releases its half year results.

Should you invest?

While I am a big fan of Xero and believe it would be a great buy and hold investment option along with fellow tech stars Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX), it might be prudent to wait for its half year results release before investing.

Especially given the premium that its shares trade at in comparison to the rest of the market. Any sign that Xero’s growth is not meeting expectations could see its shares cut down to size. And while I don’t expect that to be the case, it is a risk that I feel ought to be considered.

In the meantime, this beaten down tech star could be in the buy zone now if you ask me.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium, Appen Ltd, and 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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