Whereas the S&P 500 index was notching a contemporary report final week, shares of software program large Atlassian Company NASDAQ: TEAM have been reeling from a 15% drop. The motive force behind the plunge, coming after an virtually eighteen-month rally, was the corporate’s fiscal Q2 outcomes, launched on Thursday night. 

Contemplating Atlassian shares had benefited from the broad risk-on sentiment sweeping equities since November, gaining greater than 50% within the weeks since then, expectations have been clearly excessive for this report back to knock it out of the park. Atlassian continues to be very a lot a type of tech firms whose shares skyrocketed throughout the pandemic however then collapsed as charges elevated all through 2022. However whereas many massive tech names have gone on to undo all that injury, Atlassian continues to be in restoration mode. 

Based mostly on the current outcomes, it seems to be like it might be that means for a while. However for these of us on the sidelines, there’s purpose to suppose this dip may really be a sneaky purchase alternative and that each one just isn’t as unhealthy because it appears. However first, let’s check out the numbers. 

Robust headline numbers

As a rule, you at all times wish to see an organization beat analyst expectations for the headline numbers in a report, that’s earnings and income. Atlassian managed to do that, displaying a powerful 21% year-on-year progress of the latter determine whereas it was at it. Quarterly subscription income was up greater than 30% on the yr, serving to to drive general income and gross revenue to report highs. 

The place issues went unsuitable, although, was with the corporate’s ahead steering. Traders may forgive a headline miss if the ahead steering is stronger than anticipated, however hardly ever do they do the other. In Atlassian’s case, beating the consensus for income and earnings wasn’t sufficient to make up for the weak steering, which spooked buyers no finish. Shares plunged on the open on Friday and closed decrease once more final night time. 

Nonetheless, that is nonetheless the identical Atlassian that discovered itself on the prime of Oppenheimer’s prime picks for 2024 final month and that groups from each Citi and Wells Fargo referred to as a Purchase lower than a fortnight in the past. Regardless of the softer-than-expected outlook, which is often sufficient to justify a downgrade, Atlassian has had a number of heavyweights come out strongly in its protection. 

Jeffries analyst Brent Thill pointed to the corporate’s long-term progress trajectory as a purpose to stay bullish, even within the face of the near-term warning. William Blair took an identical stance as they reiterated their Outperform score and acknowledged that some volatility was to be anticipated from the report whereas remaining adamant that Atlassian’s upside potential stays intact. Even the refreshed worth targets, whereas decrease than their pre-earnings stage, counsel this present dip is an overreaction.

Potential upside

UBS, for instance, adjusted their worth goal right down to $250, which factors to an upside of some 15% from the place shares closed on Monday. We’re inclined to err on the aspect of being bullish and name this a uncommon shopping for alternative in a inventory that’s been rallying because the final quarter of 2022. 

Atlassian shares have been buying and selling flat in Tuesday’s pre-market session, and if they’ll end the day with out having retested or fallen decrease than Friday’s low of $211, then issues ought to get attention-grabbing. Technically, the bears want to interrupt that stage to substantiate the top of the uptrend, but when they’re unable to do this shortly, then the argument that that is an overreaction, and due to this fact a shopping for alternative, will shortly acquire momentum.

The inventory’s relative power index (RSI) has already fallen into the 30s, and whereas it’s not formally in oversold territory (it might have to be under 30 for that), it’s not far off. You may’t assist however really feel that the macro atmosphere is simply too tech-stock-friendly proper now for Atlassian to surrender all of the hard-won positive aspects of current months. Let’s see if shares can proceed consolidating above final week’s lows, and if they’ll, get able to again up the truck. 

Earlier than you take into account Atlassian, you will wish to hear this.