Application software firm Atlassian (TEAM) has performed extremely well over the last few years. The stock is up almost 145% over the last two years, while the S&P 500 is up a far more modest 21%. Even when compared to the iShares Expanded Tech-Software Sector ETF (IGV), Atlassian has gained twice as much as the sector.

Atlassian is getting ready to report fiscal first-quarter results in the next few weeks, and the stock is trading near an all-time high ahead of that earnings report. I wasn’t able to find the exact earnings date, as the company didn’t have the event on its Investor Relations page just yet. Several websites, including the Wall Street Journal, have the earnings report coming out on October 15. Based on the fact that Q4 2020 results were released on July 30 and third-quarter results were released on April 30, I am thinking the report will be in a few weeks, not on the 15th.

Regardless of when the report comes out, analysts expect the company to report EPS of $0.27 for the quarter, and that is a penny shy of the $0.28 Atlassian reported in Q1 last year. Revenue is expected to come in at $$440.49 million, and that is an increase of 25.2% compared to last year.

Over the last three years, the company has seen earnings grow by 52% per year, while revenue has grown by 38% per year. The fourth-quarter results showed earnings growth of 25% and revenue growth of 29%. Analysts expect the earnings growth to slow down in 2021 with an estimated growth rate of 3%. Revenue is expected to grow by 18.8%.

In addition to the tremendous earnings and revenue growth, Atlassian has strong management efficiency measurements. The return on equity is extremely high at 50.6%, and the profit margin is above average at 23.6%.

This is not my first article about Atlassian. I also wrote the company as part of pair’s trade idea with Slack Technologies (WORK) on April 3. I suggested that investors should buy Atlassian and short Slack. I felt the fundamentals for Atlassian were so much better than Slack’s that it would outperform – whether the market continued lower or if it continued to bounce back. The path for the overall market wasn’t really clear in early April. Since that article, Atlassian has moved up 46.6% and Slack is up approximately 26.5%.

Trying to Break through $200

In addition to writing about Atlassian, I also recommended the stock to Hedged Alpha subscribers on November 11, 2019. I suggested that subscribers should take profits on the first half on February 11, 2020 for a gain of 23%. The second half is now sitting at a gain of approximately 63%. The stock closed at $198.85 on Friday, and it is trying to bust through the $200 level for the third time in the last few months.

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The blue arrow on the chart is when I recommended the stock. The drop in March almost hit the suggested stop-loss level I suggested, but thankfully, it never quite got there.

The stock experienced two small dips in the third quarter, and that helped move the overbought/oversold indicators out of overbought territory. The quick selloffs weren’t enough to move the stock in to oversold territory, and now they have been climbing again for the last few weeks.

Analysts are More Bullish, but Short Sellers are Still Skeptical

In addition to the article in April, I wrote about Atlassian last October when the company was getting ready to report earnings. Looking back at that article, I found that the sentiment has shifted a little, but it still isn’t extremely bullish. Analysts have made the biggest shift, with 25 covering the stock, 18 with “Buy” ratings and seven with “Hold” ratings. This gives us a buy percentage of 72%. Last year, there were 22 analysts covering the stock, and these were evenly split between Buy ratings and Hold ratings.

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The short interest ratio is currently at 6.09 and has been rising in the last few months. It was as low as 3.58 at the end of June, but a combination of the short interest increasing and the average trading volume falling has caused the ratio to jump. Looking back at last year, the short interest ratio was at 5.62. The average short interest ratio is around 3.0, so for Atlassian, the ratio has been higher than the average stock for the past year. A high short interest ratio is a sign of pessimism or skepticism. From a contrarian viewpoint, that is a good thing.

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Turning our attention to the options market, there are 58,457 puts open and 54,019 calls open at this time. This gives us a put/call ratio of 1.08. That is right in the average range and reflects a somewhat neutral status for option traders. The ratio was a little lower last October at 0.995. The overall open interest is considerably higher than it was last year, and that suggests that Atlassian is getting more attention from option traders than it was a year ago.

My Overall Take on Atlassian

Obviously, I am still bullish on Atlassian, otherwise it wouldn’t still be in the model portfolio for The Hedged Alpha Strategy. The company’s fundamental ratings are really good with strong earnings and revenue growth, a great ROE, and an above-average profit margin. With more and more people working remotely, Atlassian’s connectivity software should remain in high demand.

The technical picture for the stock shows that it is still in an upward trend, but it needs to break through the round-number resistance at $200. It attempted to break above that price level in early July and again in early September. If it breaks through this time, we could see a slight acceleration in the rally.

I like the fact that the stock isn’t in overbought territory based on the weekly oscillators, but even when they have been in the past, it hasn’t necessarily been a bad sign for the stock. I just feel like it presents a better chance for a spike higher when a stock enters an earnings report and isn’t already overbought.

The sentiment toward Atlassian is still far less optimistic than it should be, at least in my opinion. The high short interest ratio could help fuel a rally if the earnings exceed expectations. As short-sellers are forced to close their positions, it adds buying pressure to a stock that is already rallying.

As for the earnings report itself, Atlassian has beaten earnings estimates in each of the last four quarters, and the average beat has been by approximately 23%. I wouldn’t be surprised if the company beats the EPS estimate again, and that would mean it grew earnings instead of the slight decline that is expected.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I don’t own Atlassian personally, but it is one of the holdings in the Hedged Alpha Strategy portfolio.

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