Xero (ASX:XRO) Shares Could Be 46.3% Undervalued After Melio AI Payments Launch

Simply Wall St.

Jun 18

Melio’s launch of an agent powered payment network is drawing attention back to Xero (ASX:XRO), as investors assess what agentic AI in B2B payments could mean for the group’s broader small business ...

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This points to a market...","collect":0,"end_time":0,"defaultTopTitle":"simplywall.st","property":[],"viewcount":null,"language":"en","relate_stocks":{"XRO.AU":"XERO LTD","CHAT":"ROUNDHILL GENERATIVE AI & TECHNOLOGY ETF","BK7503":"科技股","ARTY":"ISHARES FUTURE AI & TECH ETF","AGIX":"通用人工智能 ETF-AGIX","BK7016":"应用软件","AIPO":"Defiance AI and Power Infrastructure ETF"},"translate_title":"Melio AI Payments推出后，Xero(ASX：XRO)股价可能被低估46.3%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARTY":1.5,"XRO.AU":1.5,"AGIX":1.5,"AIPO":1.5,"CHAT":1.5},"content_text":"Melio’s launch of an agent powered payment network is drawing attention back to Xero (ASX:XRO), as investors assess what agentic AI in B2B payments could mean for the group’s broader small business platform. See our latest analysis for Xero. Despite the Melio news sharpening interest in Xero’s role in small business payments, the stock’s recent momentum has been weak, with the 30 day share price return down 8.88% and the 1 year total shareholder return down 62.66%. This points to a market that has been reassessing both growth potential and risk around the story. If you are looking beyond Xero for other ways to gain exposure to AI driven business models, this could be a good moment to scan the market using our screener of 62 profitable AI stocks that aren't just burning cash. So with Xero shares weakening while Melio’s agentic AI payments rollout gathers pace, is the stock being marked down too heavily, or is the market already factoring in much of the future growth story? AdvertisementMost Popular Narrative: 46.3% Undervalued Compared with Xero’s last close at A$71.64, the most widely followed narrative fair value of A$133.38 implies a large gap in expectations that investors are weighing carefully. Increasing subscriber numbers alongside increasing ARPU yields 20% annual revenue growth as more and more businesses turn to cloud based accounting solutions with strong integrations and eventual AI features to run their businesses. Xero has high scalability of its products, with current gross margin of ~88%. The higher revenue will be applied across relatively static operating expenses as Xero reaches the point where it can continue steady feature rollouts without needing to increase spending relative to revenue, resulting in higher net profit margins. Strong revenue and net profit margin results alongside continued feature rollouts causes the market to still view Xero as having much room to grow and results in a Future PE of 80x. Read the complete narrative. Want to see what sits behind that ambitious future profit multiple for Xero? The narrative leans heavily on compounding top line growth, expanding margins and a richer mix of higher value customers. Result: Fair Value of A$133.38 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, there are clear risks that could unsettle this Xero narrative, including tougher AI driven competitors in small business software and any stumble in maintaining platform reliability. Find out about the key risks to this Xero narrative. Another View: What Xero’s P/E Ratio Is Telling You While the narrative fair value suggests Xero shares are undervalued, the current P/E ratio of 92.3x paints a tougher picture. It sits well above the fair ratio of 40.2x, the Australian software industry average of 24.8x and the peer average of 42x. This points to meaningful valuation risk if expectations slip. That kind of gap means even small disappointments in earnings or growth expectations could have an outsized impact on the share price. How comfortable are you with paying a premium like this for Xero’s AI driven story? See what the numbers say about this price — find out in our valuation breakdown. ASX:XRO P/E Ratio as at Jun 2026Next Steps With Xero caught between high expectations and clear risks, do you want to rely on others’ sentiment or weigh the evidence yourself? Take a closer look at both the concerns and the potential upside by checking the 2 key rewards and 1 important warning sign. Looking for more investment ideas beyond Xero? If Xero has sparked your interest, do not stop there. Broaden your watchlist now so you are not late to the next opportunity.  Target potential mispricings by checking companies that screen as high quality yet out of favor via the 6 high quality undervalued stocks. Strengthen your income focus by reviewing stocks that currently pass the yield and resilience checks in the 7 dividend fortresses. Prioritise resilience and sleep better at night by scanning companies that clear the quality filters in the 8 resilient stocks with low risk scores.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n        and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n        financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n        Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n        Simply Wall St has no position in any stocks mentioned.New: AI Stock Screener & AlertsOur new AI Stock Screener scans the market every day to uncover opportunities.• Dividend Powerhouses (3%+ Yield)• Undervalued Small Caps with Insider Buying• High growth Tech and AI CompaniesOr build your own from over 50 metrics.Explore Now for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"1","news_tag":"productRelease","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"}}}