Atlassian’s stock price has taken a beating over the past six months, shedding 29.5% of its value and falling to $90.60 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Following the pullback, is this a buying opportunity for TEAM? Find out in our full research report, it’s free.
Why Is TEAM a Good Business?
Started by two Australian university friends who funded their startup with credit cards, Atlassian (NASDAQ: TEAM) provides software tools that help teams plan, track, collaborate, and share knowledge across organizations.
1. Long-Term Revenue Growth Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Atlassian grew its sales at a solid 25.9% compounded annual growth rate. Its growth beat the average software company and shows its offerings resonate with customers.
2. Elite Gross Margin Powers Best-In-Class Business Model
What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
Atlassian’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 84.8% gross margin over the last year. Said differently, roughly $84.81 was left to spend on selling, marketing, and R&D for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Atlassian has seen gross margins improve by 3 percentage points over the last 2 years, which is very good in the software space.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Atlassian is extremely efficient at acquiring new customers, and its CAC payback period checked in at 19 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Atlassian more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
Final Judgment
These are just a few reasons why Atlassian ranks highly on our list. After the recent drawdown, the stock trades at 3.6× forward price-to-sales (or $90.60 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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