Broker tips this fast-growing ASX 200 tech stock to outperform

Goldman Sachs is very bullish on the outlook of this growing tech company.

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Next week will be a big one for Xero Ltd (ASX: XRO) shares.

That's because the cloud accounting platform provider will be releasing its half year results on 14 November.

And if Goldman Sachs is on the money with its recommendation, the ASX 200 tech stock could deliver another strong half of growth.

What is the broker saying?

According to the note, Goldman expects Xero to achieve a milestone of over NZ$1 billion in first half revenue.

The broker has pencilled in revenue growth of 28% to NZ$1,025 million, which is ahead of the consensus estimate of NZ$998 million. It said:

Overall we forecast for a revenue beat vs consensus, but expect slightly higher costs given ongoing investment. Specifically we expect: (1) 1H25 revenue growth +28% to NZ$1,025mn (VAe NZ$998mn) – we bridge FY24 ARR to 1H25 in Ex 1; (2) EBITDA/EBIT of NZ$283mn/NZ$139mn (vs. VAe NZ$286mn/NZ$141mn), and expect opex as a % of sales to be 1H weighted at 75.3% (VAe: 73.9%) vs the group's target of around 73% for FY25 (GSe: 72.7%, VAe 71.6%); and (3) NPAT of NZ$104mn (vs. VAe NZ$110mn).

In light of its positive view on the ASX 200 tech stock, the broker thinks that now is a great time to be loading up on Xero shares.

The note reveals that Goldman has reaffirmed its conviction buy rating and $201.00 price target. Based on the current Xero share price of $150.30, this implies potential upside of approximately 34% for investors over the next 12 months.

To put that into context, it would turn a $10,000 investment into almost $13,500 if Goldman is on the money with its recommendation.

Why is Goldman bullish on this ASX 200 tech stock?

Goldman believes Xero has a significant long term growth runway thanks to its huge total addressable market (TAM) and favourable industry tailwinds.

And with its shares trading an attractive level, it thinks now is a great time to invest. The broker explains:

Xero is a Global Cloud Accounting SaaS player, with existing focuses in ANZ, UK, North American and SE Asian markets. We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$100bn TAM.

Given the company's pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – the stock is Buy rated. Key catalysts include: High frequency data (downloads/visitation/pricing); CEO North America strategy update and results, and potential M&A.

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 Goldman Sachs Group and 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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