Xero Ltd (ASX: XRO), the cloud accounting powerhouse beloved by Aussie small businesses and accountants, has had a rough ride.
After trading near record highs in mid-2025, the share price is now approximately 36% lower than it was this time last year. At the time of writing, Xero shares are up 0.8% to $108.78, suggesting selling pressure may be starting to ease.
So, is this a buying opportunity or a falling knife?
Let's break it down.
Why Xero shares have fallen
Xero's share price has fallen sharply over the past year, wiping out gains from prior periods and hitting fresh lows in late 2025. Bearish sentiment has been building as investors digest strategic moves and profit results that didn't quite hit the market's expectations.
The US$2.5 billion Melio acquisition in mid-2025 also weighed on sentiment. The deal was partly funded by a $1.85 billion discounted equity raising, which diluted existing shareholders and pressured the share price.
Even with positive financial metrics, such as revenue growth and improving cash flow, Xero's share price continued to slide, suggesting that investors remain cautious.
The business is still growing
Despite the share price weakness, Xero's underlying business continues to move in the right direction.
In its FY26 interim results, the company reported revenue growth of approximately 20% year on year, bringing revenue to around NZ$1.19 billion. EBITDA was also higher than the prior year, showing improved profitability even as the company continued to invest in the business.
Xero's annualised monthly recurring revenue increased strongly, supported by ongoing subscriber growth and improved pricing. The company also made progress on key strategic initiatives, including its Melio acquisition and the rollout of new AI-driven features across the platform.
On paper, these results show Xero is still growing its core business and generating cash, which provides a solid fundamental backdrop. However, some key metrics missed market expectations, particularly earnings per share (EPS), and that disappointment helped push the share price lower.
So, should you buy at these levels?
A 36% fall in a high-quality ASX tech stock is hard to ignore.
Xero remains a dominant player in cloud accounting, with a strong product, loyal customers, and a long runway for growth. While short-term uncertainty remains, the current share price is starting to look far more appealing than it did a year ago.
For long-term investors willing to weather some volatility, Xero remains a stock worth watching closely.
