Why is Goldman Sachs tipping 50% upside for the Xero share price?


It’s been a rough time for the S&P/ASX 200 Index (ASX: XJO) of late, and the Xero Limited (ASX: XRO) share price is no different.

The ASX 200 is down 8.8% over the past month, but Xero has fallen much further — down 15.8% to $76.11 at the time of writing.

This means the Xero share price has lost 48% over 2022, and it’s now 51.4% lower than its all-time high of $156.65 reached in November.

Xero used to be one of the best-performing growth shares on the ASX. Its online-based accounting software has exploded in popularity across Australia, New Zealand and many other countries in recent years. And even though Xero’s share price has taken a big hit, the company is still reporting some impressive growth numbers.

Xero released its FY2022 full-year results last month. They showed revenue growth of 29% to NZ$1.1 billion, as well as subscriber growth of 19% to 3.3 million. Earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 11% to NZ$212.7 million.

So could Xero’s recent share price plunge be a buying opportunity?

Well, Goldman Sachs thinks so.

The investment bank and ASX broker is currently rating Xero shares as a buy with a share price target of $118. If that came to pass, it would mean an upside of almost 55% from the current share price.

Goldman is bullish on Xero because it expects the company to keep its revenues growing strongly over the next few years.

It is anticipating Xero to report revenue growth of 23% to NZ$1.39 billion for FY2023. It expects more big increases until at least FY2025 when it expects the company to report NZ$1.98 billion in revenue.

Goldman is expecting acquisitions, international expansion, a transition to the cloud, Xero’s new app ecosystem, and price increases to underpin this revenue surge.

But not every broker agrees with Goldman

It’s worth noting that not all ASX brokers are as bullish on the Xero share price as Goldman.

For instance, fellow broker UBS has a sell rating on Xero with a price target of just $75.

The broker still reckons Xero’s valuation is stretched, and the company’s recent results weren’t enough to change its mind.

No doubt Xero shareholders will be hoping that it is Goldman’s price target that turns out to be accurate.

At the current Xero share price, the company has a market capitalisation of $11.32 billion.

Source: Read More

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