Could the Xero share price leap a further 35% as profits begin to flow?

An expert has predicted this tech stock to make strong returns.

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The Xero Limited (ASX: XRO) share price has climbed 7% since the release of its FY24 result, but one expert thinks the ASX tech share's rally has much further to go.

Xero's 2024 financial year report covered the 12 months ending 31 March 2024 and included several positives. Let's recap some of the main metrics and then look at how high one leading broker thinks the Xero share price can go from here.

FY24 earnings recap

Xero reported a 22% jump in operating revenue to NZ$1.7 billion, which drove adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) higher by 75% to NZ$526.5 million. Strong profit growth is a helpful tailwind for the Xero share price.

The company also saw a boost in some of its profit margins, including Xero's gross profit margin, which increased to 88.2%, up from 87.3%. The free cash flow margin lifted to 20%, up from 7.3%.

Impressively, Xero's financials saw an annual revenue increase of NZ$314 million, with the business adding NZ$240 million of free cash flow, NZ$198 million of operating profit and NZ$288 million of net profit after tax (NPAT).

The extra revenue generated excellent incremental profit, which is a promising sign of how profit might grow in the coming years as the company continues to scale.

However, Xero did note it was likely to exhaust its accumulated New Zealand tax losses during the "strategic period" of FY25 to FY27, which suggests its NPAT growth may be somewhat slower once it has utilised the NZ$193 million losses balance as of 31 March 2024.

The company's subscriber-related metrics remain strong. Its subscriber retention rate remained above 99%, which is exceptionally high. Total subscribers increased 11% in FY24 to 4.16 million, and the average revenue per user (ARPU) rose 14% to NZ$39.29.

Bullish price target on the Xero share price

Goldman Sachs has reiterated its view on Xero as a conviction buy and lifted its price target to $164.00, as covered by my colleague James Mickleboro.

The analysts at Macquarie are also bullish about the prospects for the Xero share price. Macquarie increased its price target on the ASX tech share by 17% to $180.70, according to reporting by The Australian. That implies the Xero share price could rise by around 35% in the next year.

Considering the long-term average return of the ASX share market is around 10%, the forecast rise for Xero shares could see the company substantially outperform the market if Macquarie proves to be right.

Xero share price snapshot

The Xero share price has increased around 17% since the start of 2024, as shown in the chart below. In contrast, the S&P/ASX 200 Index (ASX: XJO) is only 1.3% higher in 2024 to date.

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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