Bear of the Day: Atlassian (TEAM)

The market loves a good growth story. And for years, Atlassian (TEAM) has been one of those “set it and forget it” SaaS darlings. Jira. Confluence. DevOps tooling. Sticky enterprise customers. Recurring revenue. What’s not to love?

Well… earnings trends. And around here, that’s what matters most. The Problem is estimate revisions are slipping. That’s what makes the stock a Zacks Rank #5 (Strong Sell)  and today’s Bear of the Day.

Atlassian currently finds itself on the wrong side of the earnings revision trade. Over the last 60 days, analysts have trimmed their earnings expectations for both the current fiscal year and next year. The bearish moves have cut our Zacks Consensus Estimate for the current year from $4.76 to $4.72 while next year’s number is off from $5.44 to $5.36.

That downward pressure on estimates is exactly what drags a stock into unfavorable Zacks Rank territory. When Wall Street starts lowering the bar, it tells you confidence is waning. And in this market? Confidence is everything.

Growth is slowing but valuation Isn’t. Atlassian still trades at a premium multiple relative to the broader market. That’s fine when revenue growth is accelerating and margins are expanding rapidly. But when growth begins to normalize and enterprise spending tightens, those lofty valuations become a problem.

Cloud growth is moderating. Enterprise IT budgets aren’t as loose as they were during the zero-rate era. And while Atlassian remains a high-quality business, the stock price is still reflecting near-perfection. That’s a dangerous setup.

Atlassian is in the Internet – Software industry that ranks in the Bottom 43% of our Zacks Industry Rank. There are other names within the industry that are in the good graces of our Zacks Industry Rank. These include Zacks Rank #1 (Strong Buy) stocks 8X8 (EGHT) and Digital Turbine (APPS).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research