If you're looking for a high-quality Australian tech stock trading well below what analysts believe it is worth, Xero Ltd (ASX: XRO) may be the opportunity hiding in plain sight.
After a bruising year for ASX technology names and widespread concern about an AI-driven selloff, Xero's share price has cratered.
This is a level that implies a dramatically weaker future than analysts actually expect.
And according to a note out of Macquarie, the current price simply doesn't reflect Xero's long-term earnings power. In fact, the broker argues that the market is mispricing the company's US opportunity entirely.
Macquarie currently has an outperform rating and a $230.30 price target on Xero. Based on its current share price, this implies potential upside of 92% for investors over the next 12 months.
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Why Xero looks undervalued today
Macquarie's highlights that today's share price suggests that from FY 2028 Xero will miss the Rule of 40, which is a benchmark for high-performing software stocks, until FY 2033.
That means the market is pricing in a dramatic slowdown in growth after FY 2-28, despite evidence to the contrary.
The broker believes that its current valuation assumes Xero's core business slows to 12% annualised revenue growth beyond FY 2028 and never reaches the free-cash-flow margins achieved by its key competitor, Intuit (NASDAQ: INTU). Macquarie stresses that these assumptions are far too conservative.
The US could be the game-changer
One of the most important points that Macquarie makes is that the US market is finally showing the same conditions that historically drove Xero's strongest growth in other regions.
It notes that payment digitisation and cloud-accounting adoption are accelerating across the US, which has been a missing ingredient in past years. Xero's recent Melio acquisition gives the company a powerful distribution network and access to ~18 million small businesses via syndication partners. It said:
Management are moving quickly, with deal close 2 months earlier than expected. This coincides with Trump's digitisation of payments gaining momentum. The IRS is phasing out paper refund checks from Sep 30 2025 and pushing customers to digital rails. Moreover, the GENIUS Act and the updating/adoption of FedNOW & FedRamp are pushing more customers to digital rails and digital tax. Historically, these are the two necessary preconditions for XRO to grow strongly in a market, and they are manifesting in the US now.
Macquarie describes this as a "perfect storm" in Xero's favour and highlights that there is no clear number-two competitor in the US, and Intuit's growing focus on the mid-market leaves Xero's core small-business segment under-served.
Should you buy this Australian stock?
With the stock down sharply and Macquarie forecasting significant upside as its US strategy unfolds, Xero looks like one of the most attractive opportunities on the ASX right now.
As a result, this is one Australian stock that I would happily buy more of at the current price.
