1 Top SaaS Stock To Buy On The Dip

Buying the dip can be fraught with danger when picking a stock with poor fundamentals. But when a great company sells off, buying weakness can pay off in spades. One such great company that fits the bill and should be on your radar is Atlassian (TEAM). 

Is now the time to consider this growing SaaS company?

Don’t Know Atlassian? It’s a MONSTER

Atlassian (NASDAQ: TEAM) is a software-as-a-service (SaaS) company that allows organizations to connect and manage projects more easily.

Whether startups or large corporations, Atlassian helps teams work collaboratively from various locations. Like many software companies, Atlassian benefited from the increase in remote work triggered by the pandemic. Although employees are returning to the office, the work-from-home environment is becoming increasingly common, and Atlassian will continue to ride the wave.

Currently, users from approximately 200 countries rely on Atlassian products, including the company’s flagship platform, Jira Software, their number one tool for software developers. However, this is just one of over a dozen products on an open platform that prioritizes connection, collaboration, analytics, automation, and administration.

When we turn our attention to management, we see the company is very well-run. The two co-founders, Mike Cannon-Brookes and Scott Farquhar, are still highly engaged with the business. Atlassian has received several global awards, including the Best Places to Work and the World’s Most Innovative Workspaces.

On Glassdoor.com, the CEOs received an astonishing 97% rating, a rare feat.

Atlassian Sales Up 3x In 5 Years

Atlassian is a growth MONSTER.

In 2017, top line revenues grew 37.1%. By 2018, growth increased to 40.6%. A year later, revenues grew 37.4% again. And the last two fiscal years posted growth of 33.4% and 29.4%. Overall, sales are up more than 3x in 5 years.

In spite of the impressive sales, TEAM shares have declined a lot, dropping by nearly 30% over the last 6 months. This plummet has happened amid the most significant tech sell-off in a decade. With shares down so much from their 52-week highs of $483.13 per share, it may be ideal to buy in. 

Analysts expect Atlassian to generate $2.7 billion in revenue during the 2022 fiscal year. And yet this is a drop in the bucket compared to the potential ahead. The company’s addressable market is estimated to be as high as $24 billion, and growing.

A Closer Look at Atlassian’s Financials

• In 2021, total revenue was 2.09+ billion, compared to 1.61+ billion in 2020 and 1.21+ billion in 2019. This total includes revenue from several areas, including subscription, maintenance, and perpetual license. The subscription model has been particularly successful, accounting for more than $1.3 of the company’s total revenue. 
• Gross profit was 1.75+ billion in 2021, compared to $1.36+ billion in 2020. 
• The company added 60,000 net new customers, bringing total customers to over 200,000. 

Atlassian continues to show strong financial results, with one of its greatest strengths being its cash flow, which allows it to continue investing in future growth. Over the past five years, cash flow from operations has grown at an average rate of 44.11%.

Management continues to invest heavily in product development, with around 47% of revenue going to research in development. So, it’s no surprise that in 2021, the company built five new products.

Atlassian also made significant progress moving customers to the cloud, and increasing cloud migrations by 2x year-over-year.

Another attractive aspect of the business to investors is the firm’s freemium model. By offering limited versions of its products for free, developers promote its sales within their communities and companies.

Atlassian has benefited from this successful word-of-mouth strategy, spending only around 18% of revenue on sales and marketing. Compared to competitors in the work management space, this is incredibly low. For example, Asana spent approximately 72% of its revenue on sales and marketing.

Is Now the Time to Buy Shares of TEAM?

There’s a lot to like about Atlassian — continued innovation, high switching costs, and a rapidly growing developer community are all helping the company widen the moat. The company has a bright future.

Are there any concerns? Atlassian operates in a fragmented industry, and if it does not continue to innovate, it won’t be able to stay ahead of the competition.

Perhaps a less obvious risk on the horizon stems from acquisitions. The company often acquires new businesses. Thus far, this strategy has worked, but it can be tough on a company when you incorporate too many cultures.

All that said, Atlassian is a high-quality business, and investors have been willing to pay a premium for it. So, if you’ve had your eye on TEAM, now may be the time to buy into Atlassian as part of a well-diversified portfolio.