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On Thursday, shares of Xero Limited (XRO:AU) (OTC:XROLF) faced a rating downgrade by Jefferies from ’Buy’ to ’Hold’, although the firm increased its price target on the stock to AUD194.80 from the previous AUD185.00. The new price target represents a modest increase from the prior valuation.
The decision to downgrade the stock rating came after Jefferies assessed the current market conditions for Xero. In their evaluation, Jefferies concluded that the stock’s valuation is no longer as attractive as it once was. The analysts at Jefferies have expressed concerns over the potential for Xero to prioritize short-term growth over profitability, especially in the competitive U.S. market.
According to Jefferies, the growth opportunities for Xero appear more challenging in the Australia and New Zealand (ANZ) region, where the market is reaching a more mature phase. This maturation is evidenced by a significant 26% year-over-year increase in customer acquisition costs (CAC), which could impact the company’s financial performance.
The analysts’ remarks reflect a cautious stance on Xero’s near-term prospects. They indicated that while the company might pursue aggressive growth strategies, particularly in the United States, such an approach could come at the expense of current profitability levels.
Xero Limited, known for its cloud-based accounting software, has been expanding its presence and is attempting to capture more market share in various regions, including the highly competitive U.S. market. The increased price target from Jefferies suggests that there may still be some positive sentiment about the company’s value, despite the concerns that led to the rating downgrade.
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