Xero Limited (ASX: XRO) shares are starting the week strongly.
In morning trade, the cloud accounting platform provider's shares are up 5% to $78.92.
Why are Xero shares shooting higher?
Investors have been scrambling to buy Xero shares this morning after the company was the subject of a bullish broker note out of Goldman Sachs.
According to the note, the broker has added the company to its coveted conviction buy list with a buy rating and new price target of $109.00.
Even after today's solid gain, this suggests that the Xero share price could rise 38% for investors over the next 12 months.
What did the broker say?
Goldman has been looking through the tech sector and has named Xero as its top pick.
And while it acknowledges that Xero is high risk, it believes it has higher reward potential that more than justifies an investment. It commented:
Following our geographic analysis and recent high frequency data, we are incrementally positive of XRO's risk reward: (1) a backstop in underlying ANZ/UK profitability (trading on 26X FY24 EV/EBITDA with no NA value – attractive in our view); (2) a shift in high-frequency indicators towards profitable growth (price rises & less hiring); (3) our above consensus forecasts into FY23 & beyond.
The broker also highlights the company's massive total addressable market (TAM) that Xero can grow into over the next decade and beyond. It adds:
Xero is a Global Cloud Accounting SaaS player, with existing focuses in ANZ, UK, North American and SE Asian markets. We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$76bn TAM. Following the recent underperformance (absolute/relative), we see an attractive entry point into a compelling global growth story and our preferred large-cap technology name in ANZ, and are Buy rated (on CL).
