Atlassian stock is highly oversold: buy the dip or sell the rip?

Atlassian stock price remains under intense pressure this month as the sell-off in its software business continued.

TEAM dropped for four consecutive weeks, reaching its lowest level since December 2018.

It has dropped by 83% from its all-time high, with the market capitalization falling from $136 billion to the current $15 billion. 

Top reasons why the Atlassian stock price has crashed 

There are three main reasons why the TEAM stock price has crashed in the past few years.

First, as we have written before, its insiders have been the most aggressive in dumping the shares in the past few years. 

Data shows that these people have dumped over 3.8 million shares in the last 12 months. The top sellers are Michael Cannon-Brookes, the CEO, and Scott Farquhar. 

While this selling is part of estate management, it is worth noting that no insider has bought the shares in the last 12 months, even as the stock has become cheaper. Insider sales are often a major red flag.

Second, the ongoing Atlassian stock price is mostly because of the rising fear that AI will disrupt the software industry. This also explains why other top software companies like Gitlab, ServiceNow, and Adobe have all slumped in the past few months.

Additionally, investors are concerned about its future growth and its robust loss-making.

While the company’s revenue growth is continuing, analysts believe that the future trajectory is downward.

Atlassian's business is doing well

The most financial results showed that Atlassian’s business is doing well despite the ongoing fears of AI disruption.

Its revenue rose by 23% to over $1.6 billion, while its cloud revenue crossed $1 billion for the first time ever.

Atlassian also defied the fears of AI disruption by boosting its RPO by 44% to $3.8 billion.

It also had record deals worth over $1 million, a sign that companies are using its services. On top of this, the cloud net retention jumped to 120%

Instead of the booming AI sector disrupting Atlassian, there are signs that it is boosting its operations.

For example, more companies like Expedia, FanDuel, and Domino’s are using Rovo, its generative AI product.

At the same time, there are signs that the company has become a bargain. Its forward revenue growth for this year is 29%, while its operating margin is 27%, giving it a multiple of 56%.

TEAM stock price forecast

There are signs that the stock has become cheap. For example, it is trading at $82, much lower than the average estimate of $177.

The weekly chart shows that the stock has been in a strong bearish trend in the past few months, moving from last year's high of $325 to $82.

It recently crossed the important support level at $113, its lowest level in 2022.

The stock has remained below the 50-week and 100-week Exponential Moving Averages (EMA), a sign that bears are in control.

However, on the positive side, the stock has become highly oversold, with the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the oversold level.

Therefore, the most likely scenario is where the stock remains under pressure for a while and then resumes the uptrend.

If this happens, the next key level to watch will be at $113. A move above that level will point to more gains, potentially to $136, its lowest swing in August 2024.