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Is Xero a buy after falling more than 7% this week?

The Xero Limited (ASX: XRO) share price is down 7.7% so far this week, amid the ongoing US–China trade war tit-for-tat. So, is this the bottom for Xero, or is there further to fall?

Why the Xero share price is being hammered in August

An increase in action and reactions between the United States (US) and China have hurt global and domestic equity markets as the tit-for-tat trade war continues between the world’s biggest economic players.

On the S&P/ASX 200 (INDEXASX: XJO), Xero investors have been among the biggest fallers as Aussie tech stocks have followed their US counterparts lower so far this month.

The big catalyst for Xero giving up some of its year-to-date (YTD) gains was US President Donald Trump’s decision to place 10% tariffs on a further $300 billion worth of Chinese goods, spooking markets on Friday, and this sentiment has been carried through to this week.

However, the ASX 200 had its worst day in more than a year yesterday after China allowed its offshore currency to devalue to an all-time low against the US dollar as it looks to ‘weaponise’ the Yuan in the ongoing trade war.

The Xero share price was hammered 6% lower yesterday and closed at $59.97 per share, with similar losses felt by its fellow ‘WAAAX’ peers.

The WiseTech Global Ltd (ASX: WTC) share price was the worst performer on the ASX 200 yesterday, falling 8% lower to $26.95.

Is Xero in the buy basket?

While investors might be spooked by the sudden share price fall this week, the Xero share price is still up 43% YTD and 182% in the last 5 years.

I personally think this is just a blimp for the Aussie tech stock, and while my personal view is that the Xero share price might be overvalued at $60, I wouldn’t be panic selling just yet.

Should the US–China trade war be resolved, or show glimpse of a resolution at least, I’d expect to see both Aussie and US tech shares surge higher, while a strong earnings result from Xero in August could see it charge towards the $70 mark in coming months.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. 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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