The ASX tech share Xero Ltd (ASX: XRO) is rated as a buy by multiple analysts. It's not often that several analysts rate a business as a buy. So, the fact that there are 12 buy ratings on the company is a promising sign.
Xero is one of the few big S&P/ASX 200 Index (ASX: XJO) shares that has successfully expanded overseas into multiple countries and achieved a commendable market share there.
Offering a digital service, rather than physical products, the business is able to expand quickly. Xero offers cloud accounting and business operations for small and medium enterprises.
Let's take a look at why 12 analysts rate the business as a buy, according to Commsec. I'll refer to the views of UBS for detailed analyst commentary on the company.
UBS is one of the brokers that like the company. It currently has a price target of $215 on Xero. A price target is where the analyst thinks the share price will be in 12 months from the time of the investment call. Therefore, UBS is suggesting the Xero share price could rise by close to 27% within the next year.
The broker says that Xero is "executing on its strategy, is macro-resilient and is a member of the ASX rule of 40 club which warrants a premium valuation." That rule of 40 is a combination of numbers, the company's growth rate and its profit margin.
UBS is expecting continued growth from price increases (with an average increase of 10% in Australia from 1 July 2025), 'making tax digital phase III' in the UK, growth in payments and the launch of its reporting platform Syft to other markets, which could support an increase in the average revenue per user (ARPU).
Another reason why UBS (and other analysts) like the business is because of its low rate of churn, meaning 99% of subscribers stick with the software each year.
The broker noted the recently-announced Melio acquisition increases Xero's North American presence via payments and syndicated accounting offering. Xero's management highlighted that payments is a US$29 billion total addressable market opportunity, of which accounts payable makes up US$14 billion.
UBS also noted that Xero management have indicated advantages of offering payment capabilities to self-employed or micro businesses as these customers "often require a payments method before even adopting an accounting solution, therefore, driving more cross-sell opportunities for XRO."
UBS is projecting that in FY26, Xero could generate NZ$2.47 billion of revenue, NZ$439 million of operating profit (EBIT) and NZ$322 million of net profit.
By FY30, the company is forecast to generate NZ$4.48 billion of revenue and NZ$1.14 billion of net profit, a significant scaling of the company.
UBS is also projecting that the EBIT margin could soar from 17.8% in FY26 to 34.2% in FY30. This could be good news for the Xero share price.
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