One ASX stock to buy and one to sell

Goldman Sachs thinks one of these stocks is a buy and one is a sell.

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There are a lot of ASX stocks to choose from on the Australian share market.

But not all are buys at current levels. In fact, some could even be sells. But which ones are buys and which ones are sells?

Let's take a look at one ASX stock that could be a buy and one that could be a sell according to analysts at Goldman Sachs.

The ASX stock to buy

The first stock we're going to look at is cloud accounting platform provider Xero Ltd (ASX: XRO).

It impressed the market last week when it released its FY 2024 results and delivered revenue and profit growth ahead of expectations.

The good news is that analysts at Goldman Sachs believe there's still a significant growth runway ahead for Xero. It highlights that the company currently has a touch of under 4.2 million subscribers from an addressable market of over 100 million. The broker commented:

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$100bn TAM. Given the company's pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – the stock is Buy rated.

Goldman has a conviction buy rating and a $164.00 price target on its shares. This implies a potential upside of 22% for investors from current levels.

The ASX stock to sell

An ASX stock to sell according to analysts at Goldman Sachs is Commonwealth Bank of Australia (ASX: CBA).

The broker believes that Australia's largest bank's shares are severely overvalued at current levels and could be destined to fall materially. It commented:

We are Sell-rated on CBA given: While CBA's volume momentum in housing lending has improved and BDDs charges remain benign, we don't think this justifies the extent of CBA's valuation premium to peers. Coupled with i) a business mix that leaves it more exposed to the current competitive environment, and ii) while CBA has historically done a good job in balancing investment and productivity, we do not think it can escape elevated FY24E cost pressures given heightened inflation.

Goldman currently has a sell rating and a $82.61 price target on the ASX stock. Based on its current share price of $120.10, this implies a potential downside of 31% for investors over the next 12 months.

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and 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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