Down 55%, are Xero shares the most overlooked bargain now?

Xero Ltd (ASX: XRO) shares have been smashed. The high-growth tech name is down 37% so far in 2026 and a brutal 55% over the past 12 months.

That’s a dramatic fall for a company that was once a market darling.

So, is this a warning sign or a rare opportunity? Most brokers seem to think the latter.

Sticky users, scalable growth

Let’s start with the fundamentals.

Xero is a cloud-based accounting platform built for small and medium-sized businesses. It handles invoicing, payroll and financial reporting in one place, making Xero shares a mission-critical tool for its customers.

And this isn’t some niche player. Xero has built a global footprint across Australia, New Zealand, the UK, and beyond. Its subscription model delivers reliable recurring revenue, while its deep ecosystem of integrations keeps customers locked in. High switching costs. Sticky users. Scalable growth.

In short, this is still a high-quality business.

Hit by perfect storm

So why the heavy sell-off?

It’s not just Xero shares. The broader tech sector has been under pressure, with names like WiseTech Global Ltd (ASX: WTC) and Technology One Ltd (ASX: TNE) also pulling back. After a strong run in 2025, valuations looked stretched and the market was primed for a reset.

Then came a new overhang: artificial intelligence (AI).

Investors started asking whether AI could disrupt traditional software models. Could smarter, cheaper tools reduce the need for subscription platforms like Xero? That uncertainty has weighed heavily on sentiment.

Add rising interest rates — which tend to hit growth stocks hardest — and you’ve got a perfect storm.

Bargain hunters on the move

But here’s where things get interesting.

After months of selling, Xero shares are now trading well below their previous highs. And that’s starting to turn heads. Bargain hunters are circling, looking to snap up quality growth names at discounted prices.

The analysts are already leaning that way.

According to TradingView data, 13 out of 14 analysts rate Xero as a buy or strong buy. Some price targets suggest massive upside, with the most bullish view pointing to $231.35, implying potential gains of up to 225% over the next year.

Meanwhile, Morgan Stanley has just reiterated its buy rating with a $130 target. That suggests a possible 82% upside from current levels.

Competition is heating up

That’s a big disconnect between price and expectations.

Of course, risks remain. Competition in accounting software is heating up, and any slowdown in subscriber growth or margins could hit the stock. The AI disruption narrative also hasn’t gone away.

But zoom out, and the long-term story for Xero shares still stacks up.

Xero has scale. It has recurring revenue. It has sticky customers. And it operates in a massive global market that’s still shifting to the cloud.

The post Down 55%, are Xero shares the most overlooked bargain now? appeared first on The Motley Fool Australia.

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Motley Fool contributor Marc Van Dinther has positions in WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Technology One, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended WiseTech Global and Xero. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.