The Motley Fool

Is the Xero Limited (ASX:XRO) share price in the buy zone?

The Xero Limited (ASX: XRO) share price had a positive finish to the week on Friday.

The accounting software company’s shares finished the day over 3% higher at $41.98, which means they finished a volatile week mostly flat.

Today’s gain is especially impressive because a bearish broker note out of Credit Suisse hit the wires this morning declaring Xero as a sell.

Why is the broker bearish on Xero?

According to the note, Credit Suisse has an underperform rating and $35.00 price target on Xero’s shares.

The broker held firm with its underperform rating after Xero put the money raised from its US$300 million convertible notes offering to work this week.

Although the broker sees the acquisition of Instafile as a positive and believes the new capabilities that this business and the Hubdoc acquisition provide are helpful, at this stage it appears to think subscriber growth is key.

And, unfortunately, the broker suspects that its ANZ subscriber growth is likely to ease in the near future.

But not all brokers are bearish on Xero. A more positive note came out of Morgan Stanley this week.

That note gave the company’s shares an overweight rating and $50.00 price target. This price target implies potential upside of over 19% for Xero’s shares over the next 12 months.

According to the note, the broker has looked into the company’s U.S. prospects and doesn’t believe it will be a major winner in the market.

However, it doesn’t feel that it needs to be in order to justify its share price. Morgan Stanley feels that success in other international markets and the ANZ market will be enough to drive its share price higher in the medium term.

Should you invest?

I agree with Morgan Stanley’s view and believe Xero would be a great buy and hold investment option along with fellow tech stars Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).

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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.