The Xero Limited (ASX: XRO) share price was in fine form on Thursday.
The cloud accounting platform provider's shares surged 9% higher to end the day at $102.49.
Investors were scrambling to buy Xero's shares after its full-year results impressed the market.
In case you missed it, for the 12 months ended 31 March, Xero posted a 28% increase in operating revenue to NZ$1.4 billion, a 26% lift in annualised monthly recurring revenue to NZ$1.55 billion, and a 45% jump in adjusted EBITDA to NZ$301.7 million.
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Where next for the Xero share price?
The good news for investors is that one leading broker believes the Xero share price can keep rising from current levels.
According to a note out of Goldman Sachs, its analysts have responded to the result by reiterating their buy rating with an improved price target of $130.00.
Based on where they are trading today, this suggests that the company's shares could rise by another 27% over the next 12 months.
What did the broker say?
Goldman Sachs believes the Xero result revealed a "clean, high quality performance with strong growth ahead." In respect to its performance, the broker said:
UK performance has improved, evident in the strong sub growth (ahead of GSe, top end of guidance). This suggests prior sales execution issues are being resolved, alongside MTD tailwinds & solid macro trends; (2) 2H23 opex performance better than expected with expense ratio 77.9% (vs. guide c.80%). This gives confidence that the 75% FY24 target is achievable; (3) Guidance for sales & marketing as % sales to be flat to marginally down implies > 10% in absolute terms, supporting ongoing subscriber growth. Assuming higher CAC/churn, we still estimate XRO can comfortably add +490-585k FY24 subs (GSe 500k, Ex 3); (3) Stronger than expected FY23 FCF margin at 7.3% in FY23, alongside the rule-of-40 focus implies meaningful consensus upgrades (we revise from 25-29% to 32-34% across FY24-26E.
In light of the above and its positive outlook, the broker continues to see plenty of value in the Xero share price. It concludes:
We revise FY24-26 revenue by +0-1% and EBITDA by +1-3%. We bridge our +18% FY24E revenue growth in Ex 4, and forecast expense ratio of 75.2% vs. c.75% target. Our 12m TP is +3% to A$130 in line with earnings/FX. We re-iterate our Buy (on CL) given strong valuation support (absolute & relative), and await: (1) price changes in mid-23 (GSe +3% ANZ ARPU growth); (2) Xerocon Aug 23-24; and (3) 1H24 result and US update Nov 9.
