Australian productivity software developer Atlassian (NASDAQ:TEAM) has seen its recovery rally come to yet another plunging halt. TEAM stock recently slipped more than 25% off its 52-week high. The battered $49.7 billion company behind a suite of software commonly used by those in the technology industry sports an average price target of $255.05, which implies impressive upside potential of 28.2%. That’s not even close to the 50.8% upside implied by the highest analyst price target of $300.00 per share, either.
Indeed, TEAM stock’s expected upside is on the high end, even for a software stock. Following the stock’s latest downfall, the price of admission is now much lower, and plenty of growth drivers have caught the attention of analysts. I think the Wall Street community is right on the money with the name.
As such, I’m inclined to stay bullish, even as the road ahead continues to be bumpy for a firm that has the unique ability to upsell new features and services to its most loyal customers. Perhaps what intrigues me most about Atlassian versus most other software companies is that switching costs are quite elevated.
Don’t Underestimate the Moat Width of the Atlassian Ecosystem
When it comes to keeping software developers, project managers, quality assurance analysts (QA analysts), and other members of the team on the same page, Atlassian’s products, like Jira or Trello for smaller startups, are typically a must. Indeed, it’s not too easy to switch to a rival offering when you’ve got so many platforms under the Atlassian ecosystem that most industry professionals are already well-versed in.
Additionally, the larger the company and the longer it uses Jira and other tools, the harder it is to leave the ecosystem, given the magnitude of data (think bug reports, tickets, design and development documents, and all the sort) that’s piled up. Migrating all the data is not only a tough and tedious task, but it’s also probably ill-advised, especially if such data troves can help improve Atlassian’s new artificial intelligence (AI) features.
Undoubtedly, AI features and tools are nothing new for Atlassian. The company recognizes its potential to save teams immense amounts of time. Time is a currency that’s arguably more valuable than money, especially for technology companies on the cutting edge of innovation.
As the company looks to further monetize users, whether by offering new value-adding features or migrating some of its older customers to the cloud, Atlassian has plenty of levers to pull to get its stock moving higher again. Many analysts see such levers as reasons to stand by the stock, even as investors fall out of love with it.
Growth Drives Major Upgrade from a Big Name on Wall Street
Two weeks ago, Barclays (NYSE:BCS) Capital upgraded shares of TEAM to Buy from Hold (and gave a fresh $275 price target). This sent shares temporarily higher before the tech sell-off set in, dragging the stock right back to the low-$190 range. I view the Barclays Capital upgrade as pretty much coming for free after the drastic turn, which, I believe, was mostly in sympathy with the rest of the market.
Specifically, Barclays touted the opportunity to be had from migrating enterprise customers to the cloud. Undoubtedly, the sky could be the limit as Atlassian brings such a “large pool” of self-hosted data center clients to the cloud over the next three years.
Cloud and AI Tools are Worthy Growth Drivers
As mentioned previously, large companies that have been long-time Atlassian users tend to have a larger amount of data (or tickets). If Atlassian can bring them to the cloud, they can probably also sell them on new AI innovations, which may be made more useful for data-driven workflows across all Atlassian-owned platforms.
Undoubtedly, Atlassian stands out as one of the potential AI enablers for many firms within the enterprise. The first step is getting clients to the cloud, and the next will be to showcase the AI features that can save them a great deal. When it comes to such value-driving services, it may be tough for a client to refuse, given the magnitude of cost savings that could be on the line.
Indeed, Atlassian features some of the standard AI features typical in new AI-driven products these days, including AI-written summaries from Confluence or Jira, as well as generative AI built in the editor to help with documentation.
The most intriguing AI innovation, however, has to be the Q&A search, which allows for quick and easy natural language inquiries to find something specific about a project. As someone who’s spent countless minutes trying to find an IT or bug ticket, such an innovation, I believe, could be a massive time saver for countless team members.
In any case, I’m inclined to stick with the analysts when it comes to TEAM stock. The company has underappreciated growth drivers and a stock that’s on the cheaper side of the historical range at 12.8 times price-to-sales (P/S), well below the five-year average of 20.8 times.
Is TEAM Stock a Buy, According to Analysts?
On TipRanks, TEAM stock comes in as a Moderate Buy. Out of 23 analyst ratings, there are 12 Buys, 11 Hold recommendations. The average TEAM stock price target is $255.05, implying upside potential of 28.2%. Analyst price targets range from a low of $215.00 per share to a high of $300.00 per share.
The Bottom Line on TEAM Stock
Atlassian stock may be down, but it has the growth drivers to take it back to the clouds. Whether it’s the cloud migration opportunity or the potential of new AI features, Atlassian seems poised to capitalize on its next chapter of growth, even if investors aren’t currently as bullish as analysts.
