100 billion reasons to buy this world class ASX 200 stock

There's a lot to like about this tech stock according to Goldman Sachs.

| More on:
A man in suit and tie is smug about his suitcase bursting with cash.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are a lot of ASX 200 stocks to choose from on the local market, but one of the best to buy could be the stock in this article.

That is the view of analysts at Goldman Sachs, which are feeling very bullish about this company's long-term outlook.

Let's see what the broker is saying about this stock this morning.

Which ASX 200 stock?

The stock that Goldman is bullish on is Xero Ltd (ASX: XRO).

Xero is a rapidly growing technology company that provides cloud-based accounting software for small businesses across the globe.

According to a note released this morning, Goldman Sachs believes that Xero is performing positively so far in FY 2025.

In the UK, the broker expects the company to benefit from the Phase 3 Making Tax Digital (MTD) initiative. There are also a number of other positives that have caught its eye. It explains:

We expect the industry to benefit from Phase 3 MTD in the UK (implementation from Apr-26) with 2.3mn small businesses not VAT registered, but specifically note that: (1) Launch of Xero Simple plans offer greater functionality, seamless migration (from non-VAT cashbook subs) and a reasonable price-point vs competitors; (2) QBO recent price rises across UK plans in-line with peerset; (3) Strong XRO UK Google trend performance vs comps; and (4) Further Xero ARPU potential from JAX looks positive, given strong Sage AI CoPilot early adoption (c11k) and monetisation (£10/mth).

Goldman also highlights that in the United States, the company's "BILL.com full-card transaction sync with XRO to support uptake in payments growth" and that Xero's "deepened partnership with Gusto allows users to solely operate in XRO ecosystem (vs Beta announced at 1H25 result)."

100 billion reasons to buy shares

But the main reason that Goldman Sachs is bullish on this ASX 200 stock is that it has a US$100 billion total addressable market.

Given that Xero currently generates annualised recurring revenue (ARR) of NZ$2.2 billion, this provides it with a significant growth runway over the coming decade and beyond.

Commenting on its buy recommendation, the broker said:

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.

Goldman has a buy rating and $201.00 price target on the ASX 200 stock. This implies potential upside of 16% from current levels.

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.

More on Technology Shares

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Technology Shares

Up 60% in two months, is it too late to buy Pro Medicus shares?

Pro Medicus has been delivering solid returns for years. Can the trend continue?

Read more »

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

A man in a suit face palms at the downturn happening with shares today.
Technology Shares

Guess which ASX 300 share is crashing 17% on shock news

Investors are rushing to the exits on Thursday. Let's find out why.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Technology Shares

These were the best ASX 200 tech stocks to buy in May

Shareholders of these shares were smiling last month. But why?

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Here's why I think these ASX tech shares are buys in June

These stocks have loads of potential.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Technology Shares

Why did the Life360 share price rocket 51% in May?

This ASX 200 stock smashed the market last month with an incredible gain.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Up 30% since April, are Xero shares still a buy?

Xero shares have surged 30% since April, but can this SaaS leader's share price keep rising?

Read more »

A man and a woman sitting in a technology-related work environment high five each other while the man wears headphones around his neck and the woman sits in front of a laptop.
Share Market News

Strong gains for Wisetech, TechnologyOne, and Catapult amid ASX 200 tech sector lead

ASX technology shares led the market with a 3.85% increase while the ASX 200 lifted 0.88% last week.

Read more »