MENU

Here’s why I think Atlassian’s recent price slump is a buying opportunity

Atlassian Corporation Plc, the Sydney-based and US listed software company lost 14% of its value on Friday after the company reported its fiscal first quarter results.

Despite reporting Q1 revenue growth of 36.7% to $267 million for the quarter and similar growth expected in Q2, the market clearly felt that it was not enough to justify Atlassian’s current valuation.

After all, the company is currently trading at a price to sales multiple of 17 and at that valuation, anything less than stellar growth is likely to result in the share price being punished.

As a result, Atlassian shares are now down 27% from their 2018 high although but they are still up almost 50% from the beginning of the year.

So is Atlassian’s recent price slump a buying opportunity?

I certainly think so, particularly if you can hold for the long term and here’s why I think so:

  • Atlassian recently acquired OpsGenie, Inc. which has a large market opportunity. It’s their largest acquisition since they acquired Trello and it could provide significant upside.
  • The company’s shift to the cloud is putting short term pressure on gross margins and the market is focusing on that short term pressure. I think this is a necessary investment that will have long term benefits.
  • Atlassian has great products and is run by smart and visionary leaders. Ultimately, Atlassian is providing necessary solutions for workers and enterprises that complete most of their tasks in teams. That’s a large market and their recent decision to collaborate with, rather than compete with Slack Technologies for example, demonstrates that the management team is capable of making smart strategic decisions for the greater benefit of the company.

Risks

Whilst I’m confident about Atlassian’s long term performance, its valuation is quite high as previously mentioned. That puts it at risk along with other tech companies that have sold off in recent weeks.

Foolish Takeaway

I think Atlassian deserves a place in a well diversified and long term focused portfolio. I’m a fan of the products, its management and that’s why it’s a part of my own portfolio.

Japanese Billionaire’s Prediction Will Give You Goosebumps

When a veritable investing and entrepreneurial genius speaks, it pays to listen.

In fact, he's now preparing a $100B "war chest" to invest entirely in this "terrifying" new technology, which could spell huge profits for investors.

Click here to learn about this technology and how you can profit!

Motley Fool contributor Kevin Gandiya owns shares of Atlassian.

You can find Kevin on Twitter @KevinGandiya.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.