Xero shares rise again. Is this the start of a turnaround?

Shares in Xero Ltd (ASX: XRO) are pushing higher on Wednesday, offering a rare cheer in what has been a brutal year.

During late afternoon trade, the Xero share price is up 2.42% to $79.50.

Even so, the stock is still down around 30% this year and remains far below its previous levels.

Improving backdrop for small businesses

Recent data suggests conditions may be stabilising for Xero’s core customer base.

According to The Australian, Citi analysts see scope for margin improvement as hiring slows across the business.

At the same time, business formation remains strong. Australian registrations are up 19% year-on-year, while US applications have risen 18%.

There are also signs of reduced financial stress. Insolvencies in Australia have declined by 8%, which points to lower churn risk among small business customers.

This combination of steady demand and improving conditions could support Xero’s revenue growth going forward.

Cost pressures may be easing

Another key factor that was mentioned is the company’s cost base.

Headcount growth has slowed significantly to around 1%, while job listings growth has dropped from 18% to 8%.

This suggests Xero is becoming more disciplined with hiring, which could help control expenses after a period of heavy investment.

Citi believes this may lead to stronger margins into FY26 if cost growth remains contained.

Share price still reflects cautious sentiment

Despite today’s gain, the broader trend remains weak.

The stock has fallen sharply from levels above $150 over the past year and has struggled to hold gains in recent months.

Xero still trades on a price to earnings (P/E) ratio above 50 times, which leaves little room for disappointment if growth slows.

The recent weakness also reflects widespread pressure across global tech stocks, where valuations have been reassessed.

Technical signals show early stabilisation

Despite the gloomy backdrop, the selling pressure may be starting to ease.

The relative strength index (RSI) is sitting around the mid 40’s, indicating the stock is no longer heavily oversold but still lacks strong momentum.

The share price has also been trading near the lower end of its recent range. Support appears to be forming in the low $70 region, while resistance sits closer to $90.

Recent moves near the lower Bollinger Band followed by a rebound can sometimes point to short-term stabilisation.

Foolish takeaway

Xero shares are moving higher again, with some signs that conditions are starting to improve and costs are easing.

That said, the stock is still well below its previous highs after a recent decline.

While the selling is starting to ease, the overall trend remains weak and will need stronger results to change.

The post Xero shares rise again. Is this the start of a turnaround? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy today
• The bulls are coming: 2 of the best ASX 200 shares to buy now to get ahead
• New to investing? Start with ASX ETFs and quality ASX stocks
• 3 ASX growth shares that could benefit from the AI boom
• 3 of the best ASX stocks to buy in March

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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.