12 months ago, Xero Ltd (ASX: XRO) shares were flying high, reaching a record high of $196.52. Fast forward a year, and the picture looks dramatically different.
At the time of writing, the accounting software company's shares change hands for around $65.00, a 7-year low. That leaves the stock down more than 40% since the start of 2026 and roughly 66% lower than this time last year.
It's been a brutal period for shareholders.
So what on earth is happening with this former ASX tech darling?
Image source: Getty Images
Why are Xero shares under pressure?
The latest weakness appears to be part of the broader sell-off that has swept through growth stocks.
Investors have become far less willing to pay premium valuations for technology companies, particularly those whose investment appeal depends heavily on future growth. As sentiment towards the sector has deteriorated, Xero shares have come under fire.
The market simply isn't valuing software businesses the way it did during the boom years.
That doesn't necessarily mean there's anything fundamentally wrong with the company.
Business is still performing
While the price of Xero shares has collapsed, Xero's operating performance tells a very different story.
Revenue surged 31% to NZ$2.75 billion in the most recent financial year, highlighting continued strong demand for its accounting software platform.
Adjusted EBITDA increased 18% to NZ$757.4 million, while free cash flow reached NZ$554 million.
Perhaps most importantly, annualised recurring revenue jumped 37%.
That's a key metric for software companies because recurring subscription income provides visibility and predictability. Investors typically place a high value on businesses that can generate growing streams of recurring revenue.
In other words, the business continues to grow even as the share price struggles.
US opportunity remains enormous
One reason some investors remain optimistic about Xero shares is the company's growing traction in the US.
For years, the US small-business market has been viewed as the company's biggest long-term opportunity. Success there could significantly expand Xero's addressable market and growth runway.
Encouragingly, organic growth in the US reportedly accelerated to 30%.
That's an important milestone. If Xero can establish itself as a meaningful player in the world's largest accounting software market, the long-term growth potential becomes far more compelling.
Management's outlook also suggests growth remains firmly on the agenda. The company is targeting roughly 34% revenue growth in FY27 and expects adjusted EBITDA to land between NZ$860 million and NZ$920 million.
Those numbers hardly describe a business running out of steam.
What next for Xero shares?
Despite the strong operating performance, risks remain.
Investors are still waiting to see how the company's Melio acquisition progresses, while broader market sentiment towards software stocks remains fragile.
That's helping explain why Xero shares continue to trade well below previous highs.
Even so, some analysts see value emerging. Shaw and Partners believes the stock offers approximately 25% upside from current levels.
For now, the market appears torn between two competing narratives: a rapidly growing software business and a growth stock sector that remains deeply out of favour. Which story wins may determine where Xero shares head next.
