I mentioned in my blog post on Thursday that we’re facing more of a “special situation market.” So, it’s going to be all about picking the right stocks. We want to make sure we’re in names with strong fundamentals and earnings with good potential growth ahead.
One company that fits this criteria well is Atlassian Corporation Plc (TEAM). Yes, it’s up 27% year-to-date, but there is a lot that still makes it a good buying opportunity right now.
First, let me share some context on the company with you. If you use its team project tools like Trello or Confluence, you may already be familiar. But if not, you may recognize a few of Atlassian’s customers: Domino’s Pizza (DPZ), Indeed.com, Aer Lingus, BlackRock (BLK), the U.S. Department of Defense, Sotheby’s (BID), Spotify (SPOT), Twitter (TWTR), Trulia.com, NASA, Starz, Audi (AUDVF) and Johns Hopkins University — just to name a few!
And maybe you’ve used Agile management techniques. Atlassian is about to acquire AgileCraft, another peer in the workplace collaboration scene…one that focuses on helping all kinds of businesses implement the approach, originally created for software developers.
Following the buyout news on Monday, the stock hit a new 52-week high of $115.88. Clearly, Wall Street was unfazed by the $166 million price tag. On Friday, TEAM took a breather amid the broad market decline, which is perfectly normal after such a strong run.
Now, let’s consult my Portfolio Grader to determine if TEAM is a buy now and see how its fundamentals stack up.
Here’s how it scored:
In the Fundamental Grade, I’m primarily looking at sales growth, earnings growth and the like. That’ll help you find growing companies that are healthy and thriving, with smart leaders who know how to run and manage a smart business.
When you get right down to the details, you find that, frankly, its cash flow and return on equity could be better. It does have decent growth for both operating margin and earnings, excellent sales growth, and has been enjoying both positive earnings surprises and upward revisions in its ratings by Wall Street analysts.
Now, when you look at Atlassian’s Quantitative Grade, you see that it earned a solid “A.” This tells us that TEAM is experiencing strong buying pressure.
In my experience, buying pressure is the single most important variable when determining a stock’s health (even more so than the fundamentals).
Think of this as “following the money.” The more money that floods into a stock, the more momentum a stock has to rise. This is what my Quantitative Grade measures, and this is why TEAM is considered a strong, A-rated “buy.”
When I see an “A” rating from my Portfolio Grader, I always give the company a closer look.
In TEAM’s case, there’s a classic late-1990s backstory:
Back in 1998, two students attended the same scholarship course at the University of New South Wales, and by 2001, the two had created and registered their business, Atlassian.
In 2002, Atlassian introduced Jira 1.0. Then Confluence 1.0 was launched in 2003. The Jira tool enables software-development teams to prioritize and track software plans, to release and ship software and to track and analyze data. Confluence is an open and shared workspace platform that allows teams to create and collaborate in one place.
Today, Atlassian is a global software company that remains focused on providing tools and resources that promote teamwork and collaboration. You may have already guessed that this is why the company’s stock symbol is TEAM.
Back in January, Atlassian released better-than-expected earnings and sales for its second quarter in fiscal year 2019:
1. Its Q2 revenue jumped 39% year-over-year to $299 million, which topped analysts’ estimates for $288.32 million.
2. Its Q2 earnings per share nearly doubled year-over-year to $0.25, up from $0.13 per share. The analyst community was looking for earnings of $0.21 per share, so TEAM posted a 19% earnings surprise.
3. TEAM also noted that it had 138,235 active subscribers at the end of the quarter.
Looking forward to the third quarter, Atlassian expects total revenue between $303 million and $305 million, and earnings of $0.18 per share. That represents 35.4% to 36.3% annual sales growth and 80% annual earnings growth.
I like this company so much that I recommended it in my Growth Investor service last month. To find out my current buy limit, as well as other details on this stock, click here now.
Now, for those of you looking for income: Having just been public since December 2015, Atlassian is not quite ready to “play with the big boys” yet and offer a great dividend.
But I’ve developed another system to help us find stocks that are.
It’s called Dividend Grader. And when my two tools “converge” so that both give a certain stock their “A” grade…that’s definitely what I like to see.