UPDATE: Investors are presented with a rare opportunity as shares of Xero Ltd (ASX: XRO) have hit their lowest point in years. Analysts at Macquarie have just confirmed that the stock is undervalued, predicting a staggering 92% upside potential over the next 12 months, currently targeting a price of $230.30.
This significant downturn follows a challenging year for Australian tech stocks, primarily driven by fears surrounding an AI-driven selloff. However, Macquarie’s latest report indicates that the market is mispricing Xero’s long-term growth potential, especially in the US market, which is showing promising signs of growth.
Macquarie highlights that the current valuation suggests Xero will fall below the Rule of 40—a key benchmark for high-performing software companies—until FY 2033. This grim outlook stands in stark contrast to the company’s core business, which is expected to maintain an annualized revenue growth of 12% beyond FY 2028, according to Macquarie’s analysis.
The US market is being touted as a game-changer for Xero. Macquarie points out that conditions are aligning similarly to patterns seen in other regions where Xero previously thrived. Payment digitization and cloud-accounting adoption are rapidly increasing in the US, fueled by recent legislative changes. Notably, the IRS is phasing out paper refund checks starting September 30, 2025, pushing consumers towards digital solutions.
In a decisive move, Xero’s recent acquisition of Melio enables the company to tap into a distribution network that reaches approximately 18 million small businesses. This strategic acquisition coincides with the momentum of payment digitization, which Macquarie describes as a “perfect storm” for Xero.
Macquarie emphasizes that there is currently no clear competitor in the US market, especially as Intuit shifts its focus towards mid-market clients, leaving small businesses underserved. This opens a significant opportunity for Xero to capture a larger market share.
With Xero’s shares down sharply and Macquarie forecasting substantial upside potential, the financial community is buzzing with excitement. Analysts believe that now is the time to consider adding Xero to investment portfolios, especially as its US strategy unfolds.
This situation highlights the emotional stakes for investors looking to capitalize on an undervalued asset in the tech sector. With analysts urging immediate action, Xero is positioned as one of the most attractive investment opportunities on the ASX right now.
Stay tuned for further updates as this story develops. Investors are encouraged to act quickly as market dynamics shift.
For those considering investments, it is essential to evaluate Xero’s potential against your own financial goals and risk tolerance.
