Xero share price has 19% upside potential, top brokers say

Xero has pared gains this year, can it bounce from its lows?

| More on:
A group of six work colleagues gather around a computer in an office situation and discuss something on the screen as one man points and others look on with interest

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Xero shares have traded down in 2022
  • Brokers are constructive on the ASX tech share, but there are still a number of hold and sell calls
  • In the last year of trade, the Xero share price has clipped a 34% loss

Shares of Xero Ltd (ASX: XRO) have jumped from the open today and now rest at $87.18 apiece.

The Xero share price has struggled in 2022 and having booked extensive losses since trading resumed in January.

TradingView Chart

Brokers are bullish on Xero

Despite the ASX tech stock’s lacklustre performance this year to date, analyst sentiment appears to be tilted towards the upside for Xero.

JP Morgan identified its reasoning for Xero in a recent note, stating the company “has proven its credentials in the ANZ market and is now looking to replicate its model in its international markets”.

The JP Morgan team added:

In addition, the company is embarking on a ‘platform’ strategy that is expected to lead to higher ARPU [average revenue per user] and growth in LTV [loan-to-value].

We rate Xero overweight with the stock trading below our price target [$97/share].

Meanwhile, around 59% of brokers covering Xero have it rated as a buy right now, whereas around 18% have it rated as a hold, according to Bloomberg data. The remaining coverage urges clients to sell Xero shares.

Within this group, the consensus price target is $100.97 per share, offering around 19% upside potential should the Xero share price surge to that mark.

But the company needs “big customer growth” to first get there, in the opinion of Bloomberg Intelligence senior equity analyst Matt Ingram. He wrote:

Xero needs to sustain its 20% plus 2019-22 customer growth and lift ARPU, while controlling costs to reach a decent level of profit.

ARPU is the key driver; International’s NZ$358, well below QuickBook’s NZ$783 outside the US, needs to improve outside Australia.

Xero also needs to sustain strong subscriber growth outside the US. Operating leverage may boost operating income, but investment will curb profit.

In the last year of trade, the Xero share price has clipped a 34% loss, after heading south a further 6% this past single month.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

A white and black clock with the words Time to Buy in blue lettering representing the views of two experts who say it's time to buy these ASX shares
Broker Notes

Brokers name 3 ASX shares to buy today

Brokers are bullish on these ASX shares...

Read more »

Group of people toasting with wine
Broker Notes

Treasury Wine share price celebrates Friday with a more than two-year high

Looks like it's time for some fine wine.

Read more »

cochlear happy, share price rise, up, increase
Healthcare Shares

Cochlear share price takes off despite guidance miss

The healthcare giant's stock is surging despite its apparent guidance miss.

Read more »

A woman uses her mobile phone to make a purchase.
Broker Notes

2 ASX 200 shares set to soar if we manage to avoid a recession: experts

Could lithium and building supplies stocks be set to gain if recession fears fade?

Read more »

tradie holding a laptop computer displaying ASX share price and scratching his head looking confused
Broker Notes

Are Rio Tinto shares a buy? See what top brokers are saying

The miner's share price has struggled to make ground in recent months.

Read more »

Three Archer Materials scientists wearing white coats and blue gloves dance together in their lab after making a discovery
Healthcare Shares

Buy this ASX 200 company as its costs are actually falling: Firetrail

Rampant inflation means almost every company has to grapple with higher expenses. But here's an exception.

Read more »

An analyst wearing a dark blue shirt and glasses sits at his computer with his chin resting on his hands as he looks at the CBA share price movement today
Technology Shares

Here’s what Goldman Sachs thinks of the Xero share price

What's being said about Xero's shares this week?

Read more »

Broker looking at the share price.
Broker Notes

Morgans names 2 ASX shares to buy today

These ASX shares have been named as buys by analysts at Morgans...

Read more »