Is the Xero (ASX:XRO) share price heading to $165?

Could the Xero share price be heading to $165?

| More on:
a group of people sit around a computer in an office environment.

Image source: Getty Images

The Xero Limited (ASX: XRO) share price has been out of form in 2021.

Since the start of the year, the cloud accounting and business platform provider’s shares have gained only 1%.

This compares unfavourably to the S&P/ASX 200 Index (ASX: XJO) and its 11% gain this year.

Is the Xero share price good value?

The good news is that one leading broker expects the Xero share price performance to improve.

According to a recent note out of Goldman Sachs, the broker has a buy rating and $165.00 price target on the company’s shares.

Based on the current Xero share price, this implies potential upside of 10% over the next 12 months.

What did the broker say?

Goldman Sachs is positive on the Xero share price due to its belief that the company is well-placed for strong revenue growth over the coming years.

In fact, the broker expects its revenue to double over the next few years thanks to subscriber growth and the monetisation of its user base.

Goldman commented: “We expect XRO revenue to double across FY21-24E (+26% CAGR), driven by: (1) ARPU growth from the recently announced price rises (benefiting FY22/23E) and the introduction of this app store fee (benefiting FY23/24E); (2) Subscriber growth, given accelerating subscriber growth across all geographies in 2H21, and strong recent traction from its Enterprise strategy (i.e. recently signed a Global partnership with DFK, the 7th largest Global Accounting Association, to complement agreements with BDO/RSM); and (3) M&A, with the Planday acquisition to contribute +3% growth in FY22E.”

But Goldman doesn’t necessarily expect its revenue growth to stop there. The broker is forecasting revenue of NZ$3,699 million and EBITDA of NZ$1,263 million in FY 2030. This compares to its revenue estimate of NZ$1,129 million and EBITDA estimate of NZ$209 million for FY 2022.

Overall, if the company delivers on its estimates, the broker appears to believe the Xero share price will generate strong returns for investors. This could make it a top long term option for investors.

Should you invest $1,000 in Xero right now?

Before you consider Xero, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Xero wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

a businessman in a suit tries to forge ahead but is carrying a rope attached to a large anchor that is stuck in the ground against a background of muted sky and barren earth.
Broker Notes

What’s dragging on the Wesfarmers share price on Monday?

We check what one leading broker has to say about the retail giant's prospects.

Read more »

Two medical researchers in white coats collaborate over a computer screen of data in a medical research laboratory
Broker Notes

Where next for the CSL share price?

CSL shares could be heading higher according to one leading broker...

Read more »

Woman on her laptop thinking to herself.
Broker Notes

2 ASX All Ordinaries shares top brokers rate as buys

Here are the latest buy-rated shares from two leading brokers.

Read more »

A woman sits at her computer with hand to mouth and a contemplative smile on her face although she is considering or thinking about information she is seeing on the screen.
Broker Notes

Brokers: 2 ASX 200 shares that could be top buys for growth

Brokers think these ASX 200 shares with growth potential could be leading opportunities.

Read more »

ASX shares Business man marking buy on board and underlining it
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers rate these ASX shares as buys...

Read more »

outperforming asx share price represented by row of white eggs with cartoon sad faces with one gold egg with happy face and crown
Broker Notes

This is the best ASX bank share to buy in a rising rate environment: Citi

Only one major bank is sticking to its cost-savings goals, according to the broker.

Read more »

A woman sits at her computer in deep contemplation with her hand to her chin and seriously considering information she is receiving from the screen of her laptop regarding the Xero share price
Broker Notes

Is the Fortescue share price cheap after dropping 10% in a month?

We check what brokers have to say on the iron ore giant.

Read more »

A business man in soft-focus holds two fingers in the air in the foreground of the shot as he stands smiling in the background against a clear sky.
Broker Notes

Buy these 2 ASX shares on sale right now: top broker

A top broker has revealed two ASX shares which have fallen heavily but look like good buys.

Read more »