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."
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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.
