Salt Funds Management managing director Paul Harrison said that while Xero continued to grow sales in "absolute terms", the rate of growth was slowing.
"They're not growing revenues at the rate they need to justify the share price," Harrison said.
Xero shares, which have gained 220 per cent in the past 12 months, closed down 2c yesterday at $17.10.
Forsyth Barr analyst Andrew Harvey-Green said that while Xero's sales growth might be slowing, he expected revenue to pick up in the 2015 financial year as the company expanded in the United States.
"You can't keep on doubling revenues forever," Harvey-Green said.
Harrison also noted that Wellington-based Xero - one of the NZX's top performing stocks this year - was burning through a lot of cash.
The company, which carried out a $60 million capital raising in December, chewed through $9 million of its cash reserves in the three months to June 30, up from $6.7 million in the March quarter.
"They're actually burning through their cash quite quickly and they're not getting the revenue growth," Harrison said, adding that he thought the firm might have to look at carrying out another capital raising within the next 12 months.
Harvey-Green said the rise in Xero's expenses in the June quarter was the biggest surprise of the quarterly cashflow report the company delivered on Wednesday.
However, he did not think the firm would have to raise capital anytime soon.
"They've got plenty of cash at the moment," Harvey-Green said.
Xero had cash balances of $69 million at the end of June, down from $78 million on March 31.
Chief financial officer Ross Jenkins said the high rate of cash burn in the June quarter resulted from the company paying out its end of year bonuses to staff.
Xero's staff costs rose to $10.1 million in the three months to June 30, up from $6.9 million in the March quarter.
In April the firm - which has taken on 247 new staff in the last 12 months and now employs more than 500 people - was offering $10,000 bonuses to software developers who joined its team.
Jenkins said the modest revenue growth between the March and June quarters could be explained by seasonality in Xero's business model.
"We have a significant amount of seasonality in our business, so trying to compare the 31 March quarter to the 30 June quarter to the 30 September quarter just doesn't really work," Jenkins said.
"The prime selling season in Australia, for instance, is in July."
Drury said the company invested heavily as it expanded into the United States, grew its team and focused on growing its customer base to one million users.
Xero now has 193,000 customers, up from 157,000 at the end of March.
No capital raising was planned, Drury added. "Business is awesome," he said.
Milford Asset Management portfolio manager Mark Warminger said there was nothing particularly concerning about Wednesday's cashflow report.
Warminger said: "The Xero story is really ... [a] far longer-term picture than just looking at a quarter-to-quarter basis."
