Why is Atlassian growing today? The Motley Fool

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what happened

share of Atlassian (Team 9.53%) It rallied as much as 10.1% on Wednesday following the release of a bullish note from Wall Street analysts.

The optimism comes after a brutal stretch for the software stock, which is still about 74% below its all-time high after today’s rally. Given the broadly negative sentiment around the stock and the broader sector, investors cheered the analyst note, which highlighted a certain catalyst for the stock.

so what

These analysts Mizuho Securities Atlassian maintained their buy rating on the stock, while lowering their price target to $255 from $320. Still, that target remains about 78% higher than today’s share level at $143.

Like many SaaS stocks, Atlassian has absolutely been hurt by rising inflation and interest rates. A final major flush down came in October, when the company noted that the uncertain economic environment was slowing paid user growth.

In its third-quarter letter to shareholders, in which it announced the guidance cut, co-CEOs Mike Cannon-Brooks and Scott Farquhar wrote:

To be clear, we do not see any change in our competitive position or the underlying demand for our products. Looking across our customer base of over 249,000, there was no overall decline or change in usage.

However, there are multiple ways to increase revenue besides increasing users, another option is to increase prices. Mizuho, ​​in its part, noted that Atlassian had raised prices yesterday, which likely led the research house to maintain its bullish stance.

what now

One of the hallmarks of a strong company is its ability to raise prices without losing many customers, so it looks like Atlassian will test its competitive position this year. Atlassian creates mission-critical workflow management software that allows enterprises to plan, track and manage enterprise-wide projects. This software appears to be deeply embedded in organizations now, so management clearly believes that its price increase will not affect churn.

To be clear, Atlassian stock isn’t cheap, still earning a price-to-sales ratio of more than 10. However, if it can maintain its 30%-plus growth through user growth or price increases, it has a shot to rebound when inflation cools.

Investors will get more color when the company reports earnings on Feb. 2.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares in the said company. The Motley Fool has posts and recommends Atlassian. Motley Fool has a revealing policy.


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