2 beaten-up ASX tech shares analysts rated as quality picks

Xero is a leading ASX tech share that has suffered in recent weeks.

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Key points

  • A few ASX tech shares look good value after recent declines
  • Xero is rated as a buy by Citi. It’s growing revenue and subscribers rapidly
  • Airtasker is rated as a buy by Morgans. It’s generating resilient growth

Some ASX tech shares have suffered quite sizeable sell-offs in the last few weeks. They could be attractive opportunities for investors to consider. At least that’s what analysts think.

Businesses in the technology sector have the ability to achieve high profit margins and grow quickly thanks to the intangible nature of software.

Investment ideas can also open up quite quickly if the share price drops rapidly.

These two are rated as buys:

Xero Limited (ASX: XRO)

Xero is one of the world’s largest cloud accounting software businesses with a market capitalisation of more than $18 billion, according to the ASX.

Since the start of the year, the Xero share price has fallen more than 18%. It’s currently rated as a buy by the broker Citi which has a price target of $160. That’s a potential increase of more than 30% over this year if the broker is right.

Xero is one of the ASX tech shares with the highest gross profit margins. For the six months to 30 September 2021, the gross profit margin increased from 85.7% to 87.1%. This turns a lot of revenue into gross profit for the business to spend on further growth.

The company says that it’s committed to delivering the world’s most insightful and trusted small business platform to make life better for people in small business, their advisors and communities around the world.

To support that, Xero is going to continue to prioritise investing in product development and partnerships, and execute on its strategy to meet its customers’ evolving needs in both the short and long term.

Xero continues to grow both its subscriber numbers and average revenue per user (ARPU). In the six months to September 2021, its ARPU grew by 5% to NZ$31.32. There is revenue growth built into its annualised monthly recurring revenue (AMRR). The AMRR increased 29% to NZ$1.13 billion. But the Xero share price is the lowest it has been since May 2021.

Airtasker Ltd (ASX: ART)

Airtasker is another ASX tech share that has seen a decline in recent weeks. The Airtasker share price has fallen 11% in 2022 to date.

The task marketplace continues to see more growth as more jobs are done through the platform.

It’s currently rated as a buy by the broker Morgans with a price target of $1.27. That suggests a potential upside of more than 60% this year if the broker is right. Morgans was impressed by the first quarter in FY22.

In the three months to September 2021, the ASX tech share’s gross marketplace volume (GMV) rose 6.2% year on year to $35 million.

It’s achieving rapid growth of its international GMV, which was up more than 100% driven by strong growth in the UK in the first quarter. In the USA, it’s looking to expand in Dallas, Kansas City and Miami.

According to Airtasker, people are becoming increasingly comfortable in using the ASX tech share’s services as they get more used to the service. It’s investing in a ramping up of international marketing to drive its growth in the future.

It has a very high gross profit margin of more than 93%.

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 Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Airtasker Limited. The Motley Fool Australia owns 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.

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