The Xero Ltd (ASX: XRO) share price has been one of the worst performers in the S&P/ASX 200 Index (ASX: XJO) in recent history. In the last year alone (at the time of writing), the Xero share price has dropped more than 60%, as the below chart shows.
As an accounting software business, Xero has been one of the victims of the big decline in investor confidence surrounding software companies.
But, I think the business has been significantly oversold, and now looks very good value for three reasons.
Image source: Getty Images
Ongoing revenue growth
Firstly, the decline in the share price suggests a bleak future. However, while we can't know for certain what the future holds (positively or negatively), revenue (and subscriber) numbers remain solid because of a few different elements.
The company recently reported its FY26 results for the 12 months to 31 March 2026. Its customer numbers grew 11% to 4.92 million. Growth is accelerating – its net customer additions (excluding removed long idle subscriptions) improved by 22% to 506,000. That's a lot of extra revenue flowing through the business!
Its average revenue per user (ARPU) continues to grow thanks to regular price hikes, which isn't materially hurting the loyalty of subscribers. ARPU rose 23% to $55.44 during the FY26 period.
Those subscribers likely see the huge time-saving and efficiency tools Xero provides as a great benefit. Time-poor business owners (and accountants and bookkeepers) want to complete tasks as quickly as possible.
Thanks to those revenue growth benefits, its annualised monthly recurring revenue (AMRR) jumped 37% to $3.27 billion, and the total lifetime value (LTV) of customers increased 17% to $21 billion.
US expansion
Xero has built a significant market position in New Zealand, Australia and the UK. It also has a growing presence in countries like Singapore, South Africa and Canada.
However, it has struggled to gain much of a foothold in the US, which is a huge market if Xero can get it right. It's difficult to break into a market that already has such embedded incumbents.
The acquisition of small and medium business payments company Melio may have been costly, but it could unlock the growth and access to more subscribers that Xero has hoped for.
In FY26, it reported US revenue growth of 240% (30% on an organic basis, excluding Melio). If it can continue to grow US revenue in the double digits, I think it has a very good future.
Long-term profit potential
Profitability took a hit in FY26 due to Melio-related acquisition costs, but I think the long-term outlook looks very promising for continued profit growth in the coming years.
As a software business, the company has a lot of operating leverage – its revenue can increase at a much faster pace than its expenses, in a normal financial year.
As revenue continues to grow, I expect earnings to grow quickly. Despite profit headwinds in FY26, free cash flow increased 9% to $554 million. The company can use the rapidly rising cash flow to pay dividends and/or make more bolt-on acquisitions.
For me, long-term profit growth is the key reason I'm interested in the Xero share price.
I think Xero is a very exciting ASX share to own, though it's not the only stock I'd buy today.
