What happened

Shares of Atlassian (TEAM -1.37%) entered November at a low point, having dropped 46.8% year to date as the new month arrived. But there was more pain on tap. One disappointing earnings report later, Atlassian's stock had fallen 35.1% in November 2022, according to data from S&P Global Market Intelligence. All told, share prices are down 67% in 2022 as of Dec. 7.

So what

Atlassian is in the habit of setting up modest guidance targets and knocking them out of the park. Analyst estimates tend to stay close to the company's own projections, so this behavior has generated a long string of impressive earnings surprises..

The first quarter of fiscal year 2023, which Atlassian covered in November's report, failed to follow the usual pattern. Earnings fell 22% year over year to $0.36 per share, 5% below the consensus analyst estimate at the time. Revenue jumped 31% higher to $807 million, almost exactly in line with the Street's $806 million target. Keep in mind that the revenue result typically lands at least 5% above the analyst view. From that point of view, merely meeting Wall Street's expectations kind of felt like a miss.

But that's not the worst part. The cloud-based collaboration and project management software maker also tends to set its next-quarter revenue guidance well above the current analyst projection. This time, Atlassian's Q2 guidance pointed to revenue near $844 million, far below the analyst consensus at $879 million.

If Atlassian hits that target exactly in February's second-quarter update, that would amount to a year-over-year revenue gain of 22.5%. The lowest top-line boost in this company's history so far was a 22.6% increase in Q2 2021. That low point occurred in the deepest depths of the coronavirus crisis, and early in Atlassian's conversion from perpetual license sales to cloud-based subscription contracts. In other words, the latest revenue target was also deeply disappointing from a historical perspective.

Many investors took notice and ran for the exits. Atlassian's shares plunged 29% lower that day on the heaviest single-day trading volume in the company's history.

TEAM Chart

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Now what

Atlassian's stock is back to prices not seen since the early COVID-19 crash in 2020. However, trailing sales have surged 111% higher since the end of 2019, the company keeps generating healthy cash flow, and one serving of modest guidance is not the end of the world.

The humble revenue guidance reflects the high levels of macroeconomic uncertainty in 2022. There is nothing fundamentally wrong with Atlassian's business model. Demand is high for products like the Jira software and content development platform and the Trello project tracker. Once the economy gets back on its feet again, Atlassian stands ready to cash in as budget-constrained clients get back to investing in their business systems.

Now, Atlassian's stock is not a bargain-bin deal by traditional value metrics. Even after taking a 73% haircut from the all-time highs of October 2021, the shares are changing hands at 11 times trailing sales and 39 times free cash flow. However, we are looking at a high-octane growth stock with tremendous long-term business prospects. Atlassian will survive this challenge and thrive when all is said and done.

So if you can stomach some lofty valuation ratios, this looks like a good time to pick up some Atlassian stock for the long haul.