This tech stock is 'one the highest quality companies on the ASX'

A leading investment company says this tech stock has 'significant upside.'

| More on:
a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.

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

If you want to grow your wealth in the share market, then investing in quality companies is always a good idea.

After all, the cream always rises to the top.

With that in mind, it could pay to listen to what one of Australia's leading investment companies is saying about an ASX tech stock.

Blackwattle Investment Partners has described this stock as "one the highest quality companies on the ASX."

Which ASX tech stock?

The stock in question is cloud accounting platform provider Xero Ltd (ASX: XRO).

According to the Blackwattle Mid Cap Quality fund, its strong recent performance has been underpinned partly by Xero's high-flying shares.

As at the end of May, the fund was up 16.95% over the past six months. This compares to 11.45% for its benchmark, which means a 5.5% outperformance.

Commenting on the ASX tech stock, the investment company said:

Xero was the largest positive contributor to performance during the month. XRO rose 11% in May, on the back of a very strong FY24 result and solid outlook. XRO is a market-leading, global accounting SaaS platform. XRO's FY24 result showcased the benefits of the cultural change brought in by CEO Sukhinder Singh-Cassidy in early 2023, balancing top-line growth with profitability. XRO delivered a record EBITDA margin of 31% and free cash flow growth of over 280%, significantly beating market expectations.

The good news is that Blackwattle still sees plenty of upside for Xero despite this outperformance. It adds:

This result has cemented our view of XRO being one the highest quality companies on the ASX. We continue to see significant upside for XRO, as they continue their journey to being the market-leading, global accounting software for SMEs, while delivering strong financial metrics.

Is anyone else bullish?

Blackwattle isn't alone with its bullish view on this ASX tech stock.

Goldman Sachs is very bullish on the company and currently has a conviction buy rating and $164.00 price target on its shares. It said:

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.

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.

More on Technology Shares

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Technology Shares

Guess which ASX defence stock is rocketing 10% today (Hint: not DroneShield!)

What is getting investors excited this morning? Let's find out.

Read more »

Happy man working on his laptop.
Technology Shares

Up 80% in a year, why is this ASX 200 stock hitting a record high today?

This high-flying stock has just released its quarterly update. How did it do?

Read more »

A person sitting at a desk smiling and looking at a computer.
Technology Shares

Buy this ASX 200 tech stock 'poised for significant growth'

Tech stocks continue to catch the bid in 2024.

Read more »

A woman looks over her shoulder towards the back seat while sitting at the wheel of a stationary car with a serious look on her face.
Technology Shares

Up 102% in a year, can this ASX small-cap technology company keep on rising?

Smart Parking shares have doubled over the past year.

Read more »

Three analysts look at tech options on a wall screen
Technology Shares

Xero shares doubled the ASX 200 return in FY24. What's next in FY25?

Will FY25 be another good year for software business Xero?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Technology Shares

Up 87% in a month, this ASX stock is winning millions in AI work

The gains continue piling for this company's stock price.

Read more »

A man dives off a boat into the sea, indicating a share price fall
Share Market News

Why did the Nasdaq Index take a dive on promising US inflation data?

Cooling US inflation sent the Nasdaq Index tumbling overnight. But why?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Technology Shares

Buy this ASX tech stock for a 20%+ return: Goldman Sachs

The broker believes investors could get market-beating returns from this auto listings leader.

Read more »