The Xero Limited (ASX: XRO) share price is essentially trading at a 52-week low. What could be next for the cloud accounting software business?
Xero has had a very tough start to the 2022 calendar year. Xero shares have fallen 32% in less than two months.
What's going on with the Xero share price?
There is a lot of geopolitical uncertainty with what's happening between Russia and Ukraine.
But the large majority of the decline of the Xero share price came as the market fretted about the high levels of inflation that the US is seeing which is expected to lead to higher interest rates to try to get things under control. Goldman Sachs thinks there could be seven interest rate hikes in the US in 2022.
Why do interest rates matter so much? Let Warren Buffett, one of the world's greatest investors, explain:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.
That was from the 1994 annual general meeting (AGM) of Berkshire Hathaway.
What next for the Xero share price?
No-one knows for certain what's going to happen next. Unless they have a working crystal ball.
But several brokers have price targets for the business. A price target is where the brokers think that the share price will be in 12 months from that date. However, some of these price targets came from last year, before the recent crash.
Price targets
Both Citi and Credit Suisse rate the Xero share price as a buy, with a price target of $160. That implies a 60% upside to today's price.
However, UBS rates Xero as a sell with a price target of $88. That would be more of a decline if it happened.
The brokers at Macquarie have given a recent update to their thoughts on Xero. It upgraded the rating to 'neutral' with a price target of $100 (down from $130). Macquarie doesn't think that Xero will fall much more and believes that it's looking attractive for the long-term.
Recent result
Xero continues to grow quickly. FY22 half-year revenue rose 23% to $505.7 million, with subscriber numbers rising 23% to 3 million and the gross profit margin improving by 1.4 percentage points to 87.1%.
The ASX tech share continues to invest for growth for the long-term growth of the business and capture global market share. It recently made a bolt-on Canadian acquisition to accelerate growth in that market.
