Conviction list: Goldman Sachs says Xero share price can rise 37%

This tech share could be a strong buy according to Goldman Sachs.

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The Xero Limited (ASX: XRO) share price has been on fire this year. Since the start of the year, the cloud accounting platform provider's shares have risen an impressive 31%.

The good news for investors is that the team at Goldman Sachs believes it isn't too late to jump on the Xero bandwagon.

In fact, the broker believes the Xero share price is only warming up and sees plenty more upside ahead for investors.

What is Goldman Sachs saying about the Xero share price?

According to the note, Goldman has reiterated its conviction buy rating on the company's shares with an improved price target of $126.00.

Based on the current Xero share price of $92.00, this implies potential upside of approximately 37% for investors over the next 12 months.

What's new?

The broker has been looking at high-frequency data, Xero's pricing power, and its expectations for its FY 2023 results next month.

In respect to the former, Goldman highlights that high frequency data supports an improvement in the UK. It notes that app downloads imply +76,000 second half net adds, which is consistent with company guidance for a similar/better performance than the prior corresponding period. It is also ahead of consensus estimates.

Another positive is that its visitation and Google search shares continue to improve. And while North America is mixed, it sees the recent partnership with Allinial Global a positive. In addition, the ANZ region continues to track positively.

In addition, Goldman notes that Xero's cost reduction program is coming along nicely, with its workforce reducing meaningfully since the announcement. It points out that since March it has "seen Xero's Linkedin workforce decrease by c.14% to 5.1k."

Finally, its analysts highlight that "despite recent price increases, Xero is still inline with peers, with no historical impact on churn."

All in all, the broker believes Xero is a great option for investors and well-placed to grow into its NZ$76 billion addressable market.

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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