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Why Atlassian Stock Fell on Friday

By Daniel Sparks – Apr 20, 2018 at 3:41PM

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This could be a buying opportunity.

What happened

Despite reporting strong sales and free-cash-flow growth in its fiscal third-quarter results on Thursday afternoon, shares of the collaboration and productivity software company Atlassian (TEAM -3.96%) took a hit on Friday, falling as much as 12.4%. At the time of this writing, the stock is down 6.6%.

Bearishness toward the stock on Friday could be due to an analyst downgrade from JMP Securities, or also because Atlassian's guidance for its fiscal fourth-quarter non-IFRS (International Financial Reporting Standards) earnings per share was below analysts' consensus estimate for the period.

A hand holding a blue cloud in front of a chalk board, with three laptops drawn on it with lines linking them to the cloud.

Image source: Getty Images.

So what

Adding a record 6,000 net new customers during its fiscal third quarter and engaging with almost 3,000 users and partners during the period, Atlassian's third-quarter revenue soared 40% year over year, from $159.9 million in the third quarter of fiscal 2017 to $223.7 million. Free cash flow also rose impressively, climbing 26% year over year to $86 million.

Atlassian said it expected fiscal fourth-quarter revenue in between $232 million and $234 million and non-IFRS EPS of $0.12. On average, analysts are forecasting for fiscal fourth-quarter revenue and non-IFRS EPS of $232 million and $0.14, respectively. 

Meanwhile, JMP Securities downgraded Atlassian stock from market outperform to market perform, arguing that Atlassian's guidance combined with the stock's premium valuation only offer a "balanced" risk-reward ratio.

So what

Despite JMP Securities move to downgrade Atlassian stock, there's no material reason for investors to revise any long-term investment thesis for Atlassian after such a strong quarter. Such a significant pullback in the stock price offers a good opportunity for investors to consider buying shares.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Atlassian. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Atlassian Corporation Plc Stock Quote
Atlassian Corporation Plc
TEAM
$209.49 (-3.96%) $-8.65

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