Should investors zero in on the Xero share price in July?

Is this ASX tech share now too cheap to ignore?

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Key points

  • The ASX cloud accounting giant has suffered in June 2022
  • Some brokers think Xero shares are now an opportunity for July and beyond
  • The tech company continues to grow its subscriber numbers and operating revenue

The Xero Limited (ASX: XRO) share price suffered again in June, falling by 14%.

Xero shares have been dumped, like plenty of other ASX growth shares. In 2022, the Xero share price has dropped by 47% amid inflation and interest rate rises.

However, some experts believe this could be opening up an opportunity to buy shares of the cloud accounting business at a much cheaper price.

Let’s look at where some brokers feel the Xero share price could go in the shorter term.

Broker ratings on the Xero share price

A price target on the ASX tech share is where the broker thinks the Xero share price will be in 12 months’ time.

Morgans recently slapped an ‘add’ rating on the business with a price target of $90.25. That would imply a possible rise of around 17% over the next year from the current level. It thinks the ongoing growth of subscriber numbers and a rise in the average revenue per user (ARPU) could help the business. The broker thinks that Xero still has plenty of growth to come.

Ord Minnett also thinks it’s a buy, with a price target of $97. That’s a potential rise of around 26%. The broker thinks that recently-announced subscription price increases will help raise ARPU.

Ongoing growth

Despite all of the volatility happening on asset markets, Xero continues to grow and is investing for even more growth.

In the FY22 half-year result, Xero reported that its operating revenue increased by 29% to NZ$1.1 billion and total subscribers went up by 19% to 3.3 million. It also said that the average revenue per user (ARPU) went up 7% to NZ$31.36. Growth here could help the Xero share price.

Other financial statistics have also been showing growth. The Xero annualised monthly recurring revenue (AMRR) went up by 28% to NZ$1.23 billion and the gross profit margin improved by 1.3 percentage points to 87.3%.

Xero CEO Steve Vamos said:

The value Xero brings to our small business customers and the trust they place in us illustrated by this result. Our strong revenue and subscriber growth gives us confidence to continue to invest for growth consistent with our long-term strategy.

We are committed to delivering the world’s most insightful and trusted small business platform by focusing on driving cloud accounting adoption, growing the small business platform and building for global scale and innovation. We continue to prioritise investment in building products and growing partnerships by investing cash generated to help deliver our strategy, drive long-term growth and meet customer needs.

Xero share price snapshot

While the Xero share price is down 44% over the past year, it is up by 216% over the last five years, showing the company’s progress.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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. 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.

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