The Xero Limited (ASX: XRO) share price is out of form again on Tuesday and dropping lower.
At the time of writing, the business and accounting platform provider's shares are down 3% to $131.97.
This means the Xero share price is now down 10% since the start of FY 2021 and almost 17% from its all-time high.
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Why is the Xero share price dropping lower?
Investors have been selling Xero and other tech shares recently and rotating into value and cyclical stocks.
This has led to the S&P/ASX All Technology Index (ASX: XTX) sinking 5.5% since the turn of the year, compared to a 1.7% gain by the benchmark S&P/ASX 200 Index (ASX: XJO).
Is this a buying opportunity?
One broker that would see the weakness in the Xero share price as a buying opportunity is Goldman Sachs.
Late last year the broker initiated coverage on the company with a buy rating and $157.00 price target.
Based on the latest Xero share price, this price target implies potential upside of 19% for its shares over the next 12 months.
Why does Goldman like Xero?
Goldman Sachs is a big fan of the company's cloud-based accounting software. It notes that the value proposition for its SME customers includes its ease-of-use, a single source of "truth" (for the business & their accountant), and its ecosystem of 1,000+ best-in-class apps that provide a broad range of software solutions.
It also points out that Xero has a total addressable market (TAM) of NZ$14 billion per annum at present across its key markets. Based on its FY 2020 performance, this means that it has only penetrated 4.6% of this market.
This in itself gives it a long runway for growth. However, the broker sees opportunities for this TAM to grow even larger.
It explained: "We estimate Xero has a core TAM of NZ$14bn p.a. across its key markets (4.6% penetrated in FY20). However as it broadens and monetizes its app ecosystem, and expands into new geographies, we estimate this will open a further NZ$62bn in addressable TAM, providing a multi-decade runway for strong revenue growth."
"Combined with attractive unit economics at maturity (GSe 40% EBIT margins), we believe the long-term earnings opportunity for Xero is material," it concluded.
All in all, this could make it worth taking a closer look at Xero's shares after their poor start to the year.
