Here’s why Goldman Sachs sees lots of value in the Xero share price

It is fair to say that the Xero Limited (ASX: XRO) share price has been well and truly out of form in 2022.

Since the start of the year, the cloud accounting platform provider’s shares are down a sizeable 42%.

While this is disappointing for shareholders, it could prove to be a buying opportunity for long term investors.

Is the Xero share price good value?

The good news is that analysts at Goldman Sachs believe the pullback in the Xero share price is a buying opportunity for investors.

This week the broker reiterated its buy rating on the company’s shares with a slightly trimmed price target of $113.00.

Based on the current Xero share price of $84.26, this implies potential upside of 34% for investors over the next 12 months.

What did the broker say?

Goldman notes that there are some near term challenges that Xero is facing. However, it believes the company can navigate this uncertainty and continue its growth.

In fact, despite reducing its estimates, Goldman is still forecasting average gross profit growth of 22% per annum from Xero between FY 2023 and FY 2025.

It commented:

While noting that the near term remains robust, we do acknowledge the risk of higher churn from SME business challenges and recent price increases. Nevertheless, we see Xero as well-placed to navigate this uncertainty given the stickiness & importance of its software, and lower levels of churn vs. AU overall. We revise FY23-25 GP to reflect FX and higher churn/ARPU growth (price increases). Our 12m TP is -4% to A$113 (also revised in May).

All in all, this could make it a great option for investors that are looking for exposure to the tech sector following 2022’s weakness.

The post Here’s why Goldman Sachs sees lots of value in the Xero share price appeared first on The Motley Fool Australia.

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More reading

• Down 40% in 2022: Is the Xero share price a buy today?
• Here are the top 10 ASX shares today
• Why are ASX 200 tech shares sprinting higher today?
• How did Xero shares do in the 2022 financial year?
• Why Regis Resources, Sayona, Woodside, and Xero shares are pushing higher

Motley Fool contributor James Mickleboro 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.

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