Although Atlassian’s (TEAM Quick QuoteTEAM - Free Report)  stock has soared +33% this year it may be time to take profits or stay on the sidelines. To that point, Atlassian’s stock looks unpleasantly overvalued at current levels landing a Zacks Rank #5 (Strong Sell) and the Bear of the Day.

Cautious Performance Overview

Being a global leader and innovator in the enterprise collaboration and workflow software space there should be much better opportunities to get in on Atlassian’s intriguing growth.

Going forward investors will want to monitor the premium they are paying for TEAM shares which are still down more than -60% over the last two years despite the impressive YTD rally.

Image Source: Zacks Investment Research

Valuation Concerns

Spiking to 52-week highs of $215 a share in September, Atlassian’s stock has now fallen -11% in the last three months. While double-digit percentage growth is forecasted on Atlassian’s top and bottom lines in its current fiscal 2024 and FY25, TEAM shares still trade at an 83.2X forward earnings multiple.  

This is a high premium to the Zacks Internet-Software Industry average of 41.7X and uncomfortably above the S&P 500’s 20.4X. Further alluding to premium risk is that Atlassian’s stock trades at 11X forward sales with the industry average P/S at 2.6X and the benchmark at 3.6X.

Image Source: Zacks Investment Research

Bottom Line

For now, more caution is needed when investing in Atlassian’s stock. Currently trading at $173 a share with weaker valuation ratios, Atlassian has joined the list of tech stocks that may be in a bubble following the sharp rebound in the Nasdaq this year.