Xero Ltd (ASX: XRO) shares are in the red on Wednesday morning trade. At the time of writing, the shares are 0.86% lower at $152.46 a piece.
Over the past six months, the share price has fallen 5.1% but over the year, the shares are 1.22% higher, thanks to a number of peaks and falls.
What's happened to Xero shares?
Xero posted lower-than-expected FY25 results in May and revealed a 23% (20% in constant currency) increase in operating revenue to NZ$2.1 billion.
Later in July, the accounting software company announced a US$2.5 billion acquisition of US-based Melio, spooking investors who sold off shares in a panic about the deal's size and projected cash flow. The deal was completed in mid-October, but investor confidence still doesn't look like it has recovered.
But there is still room for growth...
The good news is that despite the sell-off earlier in the year, the business is well-positioned for an uptick in growth.
There is a global shift of small to medium businesses moving towards cloud-based accounting software, and Xero is poised to sweep up the demand.
It works on a subscription-based model too, offering monthly plans at various price points. This means the software is "sticky" with a high retention rate. This type of business model offers a predictable revenue stream versus a one-time software sale.
Xero is constantly expanding its product offering, too. This year, it has added features like online bill payments, improved analytics, and customisable home pages to make its software even more appealing to customers.
Here's what analysts think about Xero shares
Unlike investors, analysts are much more bullish about Xero shares and see its recent share price spiral as a great opportunity to access good-quality stock.
According to TradingView data, 6 out of 10 analysts have a buy or strong buy rating on the shares. The average target price is $195.29 but some believe that Xero shares could hit $227.09 over the next 12 months. That represents a potential upside as high as 49.36% at the time of writing.
Last week, UBS analysts confirmed a buy rating on Xero shares and a $215 target price. That represents a potential 41% upside at the time of writing.
Earlier this month, Wilsons Advisory also said it thinks Xero shares are good value after recent share price pullback.
Analysts at Citi are also optimistic about the outlook for the business. Its analysts have a buy rating and $210 target price on Xero shares, citing "superior subscriber growth". That represents a potential upside of 37.7% over the next 12 months, at the time of writing.
