Xero Ltd (ASX: XRO) shares closed 0.36% higher on Tuesday afternoon, at $108 a piece. So far in 2026 the shares have dropped 4.89%. They're currently trading 34.71% below levels this time last year.
From US-acquisition news which spooked investors to lower-than-expected financial results, the company faced strong headwinds in 2025. But I think the reaction was way overdone and the level of investor sell-off was unfounded.
Right now, I think the cloud-based, accounting software company is a screaming buy. And here are three reasons why.
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1. The business is stable
Despite Xero's share price sell-off last year, the business is stable and 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 capture any increase in demand.
The company works on a software-as-a-service (SaaS) subscription-based model which offers monthly plans at various price points. This means the software is "sticky" and has a high retention rate. This type of business model means Xero has a stable recurring revenue, global exposure and profitability. It also means it has a scalable software platform which doesn't rely on consumer spending pressure (in other words, it has low downside risk).
The company has also previously demonstrated that it can remain resilient and grow through various stages of economic cycles.
2. The business is actively expanding
Xero is also constantly expanding the products it can offer its clients. In 2025 the company added features like online bill payments, better analytics, and customisable home pages to make its software even more appealing to customers.
Although its Melio acquisition last year didn't sit well with Aussie investors, the move is part of Xero's strategy to grow its US business. By integrating a US payments platform with its current accounting software, it could open up new revenue streams for the business and accelerate its presence in the US small-business market.
Xero is also investing in automation and AI tools to make its software more valuable to small businesses. This is a key focus for the business in 2026.
3. Xero shares could double in 2026
I've said previously that I'm quietly confident that Xero shares could double in value in 2026, or go even higher.
TradingView data shows that most analysts (11 out of 14) are also bullish on Xero shares over the next 12 months.
The maximum target price is $228.85 a piece, which implies a huge 111.90% upside for investors at the time of writing.
UBS is positive on the medium-term growth outlook for Xero and believes the current share price is an "attractive buying opportunity". The broker has a $194 price target on the shares.
Macquarie has an outperform rating and $228.90 price target on the shares, saying the company is well-positioned for growth in the US.
