Xero Ltd (ASX: XRO) shares have had a tough run of it since notching new all-time closing highs last June.
Though signs are emerging that a sustained turnaround could be brewing for the embattled stock.
Shares in the S&P/ASX 200 Index (ASX: XJO) business and accounting software provider closed up 0.36% on Tuesday, trading for $83.72 apiece.
Despite the welcome lift, the share price is still down a painful 49.87% since this time last year.
As for that potential early turnaround, Xero shares notched a multi-year closing low of $71.84 on 24 February. That low point came amid a broader tech stock sell-off driven by concerns that artificial intelligence, or AI, could be poised to knock the stuffing out of software as a service (SaaS) providers.
But since that low, posted just two weeks ago, Xero shares have surged 16.6%.
And according to Red Leaf Securities' John Athanasiou, the ASX 200 tech stock is well-placed to keep outperforming over the medium to longer term (courtesy of The Bull).
Here's why.
Image source: Getty Images
Should you buy Xero shares today?
"This accounting software provider has been sold off, but fundamentals remain strong," Athanasiou said.
Citing the first reason he's bullish on Xero shares, he said, "Its capital light, subscription-based model provides recurring revenue, pricing power and operating leverage."
As for the second reason the tech stock could outperform, he noted:
Subscriber growth in Australia, New Zealand and the UK is resilient amid expanding margins through improving cost discipline. The US market remains under-penetrated, offering options over the long term.
And Athanasiou doesn't believe that AI is likely to take a bite out of Xero's bottom line. Quite the contrary.
"Artificial intelligence is likely to enhance Xero's product suite, improving workflow automation and stickiness rather than disrupting revenue," he said.
As for the fourth reason you might want to buy Xero shares today, Athanasiou concluded:
Recently trading below prior multiples, the risk/reward is attractive for long term investors. This is a profitable, global software platform with scale, and current weakness presents an accumulation opportunity for those looking beyond short-term sentiment.
What's the latest from the ASX 200 tech share?
The last price-sensitive news out from Xero was the 3 February market update, highlighting its growth potential.
The company noted that more than 4 million customers worldwide are now using its platform. And some two million Xero subscribers were said to be benefitting from AI features, with 300,000 of those subscribers using new GenAI tools.
Xero CEO Sukhinder Singh Cassidy said:
We are deeply focused on capturing the global AI and US accounting plus payments TAM [total addressable market]. Xero is well positioned to shepherd SMBs [small and medium sized businesses] into the AI era and take advantage of this technology.
Xero shares closed up 2.6% on the day the update was released.
