Thoughts on Xero Ltd (XRO)
XRO has been in downtrend since mid June. Do you still remain bullish despite the trend having not been our friend for 6 months? Kevin W
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Answer
Hi Kevin,
Xero (XRO) has been smacked more than 40% from its June high, suffering more than some in the ASX Tech Sector which has also declined ~30%. The reason for the decline has been the valuation rerating of the high growth names as markets price in one or two rate increases in 2026 after looking for cuts just a few months ago.
- XRO is likely to have underperformed the sector due to the increased uncertainty around the integration of Melio which it bought for $US2.5bn.
We were not surprised by the pullback having exited XRO in June above $193 on valuation concerns, but the degree of the correction has been far deeper than we expected with our Active Growth Portfolio scaling back into the online accounting business too soon.
We continue to believe this is a quality business which has simply been re-rated with it trading ~50% below its average valuation of the last 5-years.
- Shawn’s Trading Ideas bought XRO at $111.23 on Thursday believing the next 10-15% move is on the upside.
