Atlassian lost 3.6% of its value yesterday and underperformed the S&P 500 and Dow Industrial composite indices by 4.6% and 5.0% respectively. The large-cap Technology company ended the day at $119.23, closing in on its 52 week high low of $114.11 and is 45.22% below its average target price of $217.65. Over the last 12 months, Atlassian is down -72.2%, and has underperformed the S&P 500 by 52.6%. The stock has an average analyst rating of buy.
Atlassian does not release its trailing 12 month price to earnings (P/E) ratio because its earnings per share of $-2.86 are negative over the last year. Since P/E ratios are the stock's price divided by its earnings per share, a negative Eps number will result in a negative P/E ratio. This doesn't tell us much besides the fact that the company is not currently profitable.
Based on Atlassian's positive earnings guidance of $2.04, its stock has a forward P/E ratio of 58.4. Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. In comparison, the Technology sector has historically had an average P/E ratio of 26.5.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it sold all its tangible assets and paid off all debts today. Atlassian's P/B ratio of 63.4 indicates that the market may be overvaluing the company when compared to the average P/B ratio of the Technology sector, which is 5.57.
Atlassian is likely to attract many investors on the basis of its strong gross margins, which indicate that it either has an exceptional competitive advantage, or that its particular product or services involve very few direct costs:
| Date Reported | Revenue ($) | Cost of Revenue ($) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-06-30 | 2,802,882,000.0 | 465,707,000.0 | 83.38 | -0.74 |
| 2021-06-30 | 2,089,132,000.0 | 334,311,000.0 | 84 | 0.78 |
| 2020-06-30 | 1,614,173,000.0 | 268,807,000.0 | 83.35 | 0.88 |
| 2019-06-30 | 1,210,127,000.0 | 210,285,000.0 | 82.62 | n/a |
- Average gross margins: 83.3 %
- Average gross margins growth rate: 0.3 %
- Coefficient of variability (lower numbers indicate more stability): 0.7 %
Don't let the above fool you. Such high gross margins need to be considered alongside the company's operating margins, which take into account overhead:
| Date Reported | Total Revenue ($) | Operating Expenses ($) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-06-30 | 2,802,882,000.0 | 2,909,339,000.0 | -3.8 | -172.11 |
| 2021-06-30 | 2,089,132,000.0 | 1,978,963,000.0 | 5.27 | 505.75 |
| 2020-06-30 | 1,614,173,000.0 | 1,600,087,000.0 | 0.87 | 117.43 |
| 2019-06-30 | 1,210,127,000.0 | 1,270,489,000.0 | -4.99 | n/a |
- Average operating margins: -0.7 %
- Average operating margins growth rate: 150.4 %
- Coefficient of variability (lower numbers indicate more stability): 708.6 %
We can see that in fact, Atlassian's significant overhead eliminates its profits from sales entirely. The company is not profitable.
To get a better idea of Atlassian's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenses:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-06-30 | 883,496,000.0 | -70,583,000.0 | 812,913,000.0 | 0.38 |
| 2021-06-30 | 841,330,000.0 | -31,520,000.0 | 809,810,000.0 | 50.38 |
| 2020-06-30 | 574,210,000.0 | -35,709,000.0 | 538,501,000.0 | 27.56 |
| 2019-06-30 | 466,342,000.0 | -44,192,000.0 | 422,150,000.0 | n/a |
- Average free cash flow: $812,913,000.00
- Average free cash flow growth rate: 26.1 %
- Coefficient of variability (lower numbers indicating more stability): 30.5%
Free cash flow represents the money that Atlassian can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.
In conclusion, Atlassian may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least. Please consider supporting our free equity market reporting by subscribing to our daily newsletter!
