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.