Shares of Atlassian (TEAM -2.45%) climbed 18.7% last month, according to data provided by S&P Global Market Intelligence. Investors cheered new product announcements that should enhance the company's position in a competitive growth industry.
Investors were excited by new product announcements
Atlassian hosted an event in Barcelona in the first week of October that showcased product updates and provided commentary on its product strategy. Investors were pleased with the ahead-of-schedule availability of the company's new artificial intelligence (AI) assistant. Atlassian also softened its cloud-only approach, opening the door to more opportunities with enterprise customers who are committed to the data center route for managing their data.
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The company also communicated a plan to "zig" while competitors "zag" to provide value to development teams. Numerous AI software vendors are automating coding functions, and Atlassian intends to enhance its competitive position by focusing on supporting the variety of other collaborative functions that keep enterprise development teams moving forward productively.
These announcements were all well received in the market. The stock rose steadily for two weeks, and Atlassian received upgraded ratings from the equity research teams at two prominent banks following the event. It pulled away from competitors like Monday.com (NASDAQ: MNDY) and Asana (NYSE: ASAN). The three peers tend to be highly correlated outside of news events.
None of that news materially changed the company's cash-flow forecasts for the medium term. However, the developments were still bullish. The workforce management and collaboration software industries are expected to grow around 10% annually over the next few years. While lucrative, it's a competitive industry that's likely to reward the best vendors while punishing laggards. Improvements to the product suite that improve a company's competitive position are a big deal, and that dynamic was on display last month for Atlassian.
Atlassian rewarded investors with a strong quarterly report
Atlassian reported quarterly earnings on Oct. 31 after the market closed. The company beat analyst estimates with 21% revenue growth, and it revised its full-year forecasts slightly higher. However, the company fell short of earnings per share (EPS) expectations as it struggled to maintain profit margins in the face of higher employee compensation costs. Higher expenses drove larger net losses and lower net cash flows relative to the prior year.
Despite the weakness in cost controls, the report was still received positively by the market. Analysts revised their forecasts higher, and the stock climbed more than 20% in the first week of November.
TEAM Revenue Estimates for Next Fiscal Year data by YCharts.
Its forward price-to-earnings (P/E) ratio has climbed above 70, so Atlassian is fairly expensive even relative to its impressive growth rate. It remains a compelling opportunity for long-term growth investors, but it's only appropriate for people with some appetite for risk and volatility.
