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Why a Company's Performance Doesn't Always Translate in Its Stock

By Motley Fool Staff – Jan 1, 2022 at 4:45AM

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Sometimes the market has trouble valuing a company.

In this segment of "The Morning Show" on Motley Fool Live, recorded on Dec. 13, Fool Director of Small Cap Research Bill Mann and Senior Analyst Jim Gillies take a look at the fluctuation of Atlassian (TEAM -0.37%) stock over the past year.

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Bill Mann: You have to separate in your mind the performance of the company and the performance of the stock.

Jim Gillies: Yes.

Mann: Here's a basic formula. Stock price equals how the company is doing, times how the market feels about it at that given point in time. The feeling part is to us largely irrational, so it is. The more a company promises in the future, the harder it is to value today. Let's take a non-controversial example, a company that the people who own probably don't get too emotionally upset about. Talking about Atlassian. Atlassian is basically a $100 billion company. In this last year, it has been a $160 billion company.

Gillies: A 160?

Mann: Yeah. It's also been a $40 billion company by market cap.

Gillies: Wow.

Mann: Yeah. What I hear when I hear those two numbers is something very simple. Market has no idea how to value Atlassian, so it's all based on feelings. There is no such thing, and this is why I was using a specifically uncontroversial one because there are plenty of controversial ones out there. There is no such thing as a company worth $45 billion and $160 billion in the same year intrinsically. All that is how the market feels about it at any given point.

Gillies: Yeah.

Mann: You have to separate the two in your mind, you just have to. There's nothing in the world that Atlassian could have done to make itself go from $45 billion to $160 billion. They could have suddenly started the solved cancer division or something batty like that, but it just doesn't really, from a business perspective, happen that way. It's hard, and this is why the conversation about the 52-week high was important because somebody out there bought Atlassian at $470 a share and it is currently, let me get you a fresh quote, $378 bucks a share.

Bill Mann owns Atlassian. Jim Gillies has no position in any of the stocks mentioned. The Motley Fool owns and recommends Atlassian. The Motley Fool has a disclosure policy.

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