What happened
Shares of Atlassian (TEAM +1.26%) were rallying as much as 10.1% on Wednesday, following the release of a bullish note from a Wall Street analyst.
The optimism comes after a brutal stretch for this software stock, which remains around 74% below its all-time highs, even after today's surge. Given the hugely negative sentiment around the stock and the broader sector, investors cheered the analyst note, which highlighted a specific catalyst for the stock.
NASDAQ: TEAM
Key Data Points
So what
Analysts at Mizuho Securities maintained their buy rating on Atlassian shares, while lowering their price target from $320 to $255. Still, that target remains about 78% higher than today's share levels around $143.
Like many SaaS stocks, Atlassian has been absolutely hammered by rising inflation and interest rates. A final big flush down came in October, when the company noted the uncertain economic environment was leading to slowing paid user growth.
In its third-quarter letter to shareholders, in which it announced a cut to guidance, co-CEOs Mike Cannon-Brookes and Scott Farquhar wrote:
To be clear, we're not seeing any changes in our competitive position or in the inherent demand for our products. Looking across our customer base of 249,000-plus, there has been no overall decrease in usage or change in churn.
However, there is more than one way to increase revenue besides user growth, with the other option being to raise prices. Mizuho noted in its piece that Atlassian just raised prices yesterday, which perhaps led to the research house maintaining its bullish stance.
Now what
One of the hallmarks of a strong company is the ability to raise prices without losing many of its customers, so it appears Atlassian will be testing its competitive position this year. Atlassian makes mission-critical workflow management software that allows enterprises to plan, track, and manage enterprise-wide projects. That software appears to be deeply embedded in organizations now, so management apparently believes its price hike won't affect churn.
To be clear, Atlassian stock isn't cheap, still garnering a price-to-sales ratio over 10. However, if it can maintain its 30%-plus growth going forward, either through user growth or price increases, it has a shot to rebound if inflation cools down.
Investors will get more color when the company reports earnings on Feb. 2.
