Atlassian (TEAM) develops software for other software developers. After more than doubling over the past year, its stock seems quite bubbly. The longer-term chart shows an incredible, albeit seemingly unsustainable parabolic move.
Despite the momentum behind the name, the company has found a way to continue raising the bar on quarterly results, inspiring analyst upgrades. With no visible dents in Atlassian’s armor, I remain bullish on the stock and think the hefty valuation is warranted. (See Analysts’ Top Stocks on TipRanks)
TEAM Stock: You’ve Got to Pay Up for Premium Growth Prospects
At around 49 times sales, TEAM is one of the most expensive technology companies out there. The demand for tools and productivity-enhancing platforms can only move higher from here as many firms, even those from non-traditional tech backgrounds (think finance and consumer discretionaries), embrace innovation to remain relevant in today’s world.
Indeed, the pandemic has given technological innovation a considerable spark. Lockdowns may have caused technological trends to move forward by some amount of years through the course of 2020.
With COVID-19 still causing lockdowns in certain parts of the world, the trend could continue to accelerate, and with that, the adoption of sci-fi trends like the metaverse, which, like the internet in the early 1990s, seems difficult to even fathom today.
The advancement of technology, the continued rise of EVs (electric vehicles), and the Internet of Things (IoT) all call for greater lines of code, more software development, and more tools like those offered by the likes of an Atlassian.
Unlike most other pandemic-resilient firms or pandemic beneficiaries, demand for Atlassian’s software offerings seems relatively immune from the demand hangover that tends to follow crisis-induced forward pulls in demand.
If anything, demand for such productivity-enhancing software would be likely to snowball on itself, building upon strength experienced during good times. For that reason, the recent parabolic climb in TEAM stock looks very well-supported by the great fundamentals that keep getting better.
Indeed, Atlassian is a trusted name in the software development and project management community. Incredibly popular brands such as JIRA are pretty much household names. Many software developers don’t think twice about which platforms they’ll use because of how embedded Atlassian has become in the community.
Due to its brand power and trusted reputation, the company has an extensive moat that may be underestimated. The firm can spend more on R&D, less on marketing, given Atlassian’s comprehensive suite of solutions has been the go-to choice for many in the industry for many years now.
Atlassian: Way More to Expect on the Innovation Front
Atlassian isn’t ready to stop at software development. It has various products that cater to new verticals, including IT services.
For many firms, Atlassian may very well be a one-stop shop for everything from software development to business requirements tracking to help desk.
With the metaverse likely to hit the mainstream at some point over the next few years, one has to think that Atlassian is hungry for a piece of the pie. The metaverse is likely the next frontier in the future of remote work. Arguably, Atlassian is the king of remote work among technology professionals and enthusiasts.
Atlassian is a relatively small player with its ~$100 billion market cap in an ocean filled with +$1 trillion giants. However, I do think it would be unwise to believe that the firm will be left flat-footed as the virtual and augmented realities become more of a reality for everyday professionals.
Fortunately, Atlassian’s operating solid margins (most recently at 27% on a non-IFRS basis), healthy free cash flows, and muted marketing spend give the company more than enough financial flexibility to continue innovating as the tides change. Further, Atlassian may have the edge as it brings its many satisfied clients into new realms such as the metaverse.
Wall Street’s Take
Turning to Wall Street, TEAM stock earns a Moderate Buy consensus rating. Out of 15 analyst ratings, there were 10 Buys and five Holds assigned in the past three months.
The average Atlassian price target is $493.08, implying 18.1% upside potential. Analyst price targets range from a low of $380.00 per share to a high of $525.00 per share.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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