Xero shares: 3 reasons to buy and 3 reasons to sell

Xero Ltd (ASX: XRO) shares have fallen further into the red in Friday afternoon trade.

At the time of writing, the shares are down over 4% and are changing hands at $61.68 a piece.

Today's decline marks the third consecutive day of losses for the ASX  tech business. The shares have now crashed nearly 12% since Tuesday this week, and are 65% lower than this time last year.

For context, the S&P/ASX 200 Index (ASX: XJO) is roughly flat for the year-to-date at the time of writing, but around 0.5% higher than 12 months ago.

It's not all bad news for Xero shares though. Here are three reasons to add the tech stock to your portfolio this financial year, and three reasons to sell up.

3 reasons to buy Xero shares

1. Xero has a sticky subscriber base

The company has a sticky subscription revenue, which means its customers are likely to keep paying for its services and products over a long time. Switching to an alternative accounting, invoicing, and payroll system would be time-consuming for businesses, so many customers could easily stay subscribed for years. This makes the company's revenue predictable.

2. There are huge growth opportunities 

The company is still a relatively small market player, but there is a huge amount of potential future growth globally. These growth opportunities include expansion in the UK and US, as well as payroll and workflow automation offerings. Xero is also actively expanding its presence and its product suite. The company's latest FY26 result shows the company is growing, too. It posted a 31% hike in operating revenue in mid-May, and its adjusted EBITDA is up 18%.

3. Brokers tip an upside ahead

Market Index data shows that brokers are very bullish about the outlook for Xero shares over the next 12 months. The majority have a buy rating on the shares and the $145.69 average target price implies a potential 137% upside ahead.

3 reasons to sell Xero shares

1. Xero doesn't pay dividends to shareholders

If passive income is your goal, Xero isn't the stock for you. The company is still in the growth phase, which means it is focusing its funds on growing the business rather than distributing products to shareholders.

2. The company is highly sensitive to volatility

Xero is a growth stock, which means that its share price is sensitive to changes in investor sentiment, interest rate movements, and shifts in consumer spending. It's not a defensive asset which means it isn't as resilient as some other alternatives during times of sharemarket volatility.

3. Competition is intensifying

Xero competes with major global players, including MYOB, Reckon (ASX: RKN), Intuit (Nasdaq: INTU), and Sage (LSE: SGE). Increased competition could make it harder for Xero to grow its market share or maintain pricing power.

The post Xero shares: 3 reasons to buy and 3 reasons to sell appeared first on The Motley Fool Australia.

Motley Fool contributor Samantha Menzies 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's parent company Motley Fool Holdings Inc. has recommended Sage Group Plc. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2026