Now could be a great time for investors to buy Xero Ltd (ASX: XRO) shares.
That's the view of analysts at Goldman Sachs, which have become even more bullish on the cloud accounting platform provider.
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Xero shares tipped to rise beyond $200
According to the note, the broker has been looking into the US market and believes that Xero's product velocity and evolving competitive landscape presents opportunities.
So much so, its analysts believe that Xero's shares could be destined to break through the $200 barrier in the near future.
The note reveals that Goldman has reiterated its conviction buy rating with an improved price target of $201.00.
Based on the current Xero share price of $147.49, this implies potential upside of 36% for investors over the next 12 months.
Four reasons to buy
Goldman has revealed four key reasons why it thinks that Xero's shares are heading higher.
The first is that Xero's US product cadence is accelerating, with significant progress on localisation. It said:
Xero launched a significant amount of new product at its recent Xerocon Nashville event, which has been well received by the market. Based on our discussions, the key positive has been its focus on localizing the product to be more US centric, and consistent with how QBO accountants typically operate — reducing the barriers to adopting Xero.
Examples of these localisation efforts include the change in approach to bank reconciliation (reportedly the number 1 objection to adopting Xero) and a localised chart of accounts (to specific US business types).
It also feels that an evolving competitive landscape presents an opportunity. Goldman adds:
With Intuit increasingly focused on the mid-market, and having made significant price rises in recent times, conversations suggested increasing frustration, but also limited intent to adopt another provider, given limited risk in maintaining the status quo, alongside training/system benefits to accounting firms for staying with QBO.
This is where relationships, awareness and removing behavioural barriers to Xero adoption becomes important.
Another positive that Goldman highlights is the company's Xero/Bill.com partnership. It said:
Provides access to BILLs 7.1mn network members, with BILL also noting it is investing heavily into its 8k+ accounting firm partners, with Client Advisory Services (CAS) being the fastest growing part of every accounting practice Bill works with.
Finally, it sees an opportunity for Xero north of the border in Canada due to the impending arrival of open banking. Goldman explains:
Although not within Xero 3×3, there is line of site to an improving Canadian opportunity in 2025-26 as Open-banking is introduced (lack of progress on open banking/bank feeds cited as key reason driving the industry wide slowdown in cloud adoption).
Xero shares are up 31% over the past 12 months.
