TEAM Trades at Premium Valuation: Time to Hold or Fold the Stock?

Forward 12-Month P/S Ratio

Image Source: Zacks Investment Research

TEAM’s elevated valuation raises concerns about whether the stock can justify such lofty multiples. Considering the premium valuation, investors must be wondering whether they should buy, hold or sell the stock, especially amid near-term challenges.

Rising AI Investments May Hurt TEAM’s Profitability

Atlassian's long-term AI strategy requires significant upfront investment, which may continue to weigh on GAAP profitability despite strong revenue growth. Atlassian expects a 6.5% GAAP operating margin in the first quarter of fiscal 2027 and 4.5% for fiscal 2027 compared with a 12% GAAP operating margin in the fourth quarter of fiscal 2026. This shows that Atlassian expects significantly lower profitability in FY27 than it achieved in the latest quarter.

The main reason is that Atlassian plans to keep spending on AI and expand its enterprise sales efforts. Management said it will continue to invest in AI and scale its enterprise go-to-market strategy because it sees strong demand in these areas. At the same time, the company plans to control costs through disciplined hiring, shifting resources toward higher-return opportunities and lower stock-based compensation. Even with these measures, the 4.5% fiscal 2027 operating margin target shows that higher investment is likely to weigh on the company's profitability.

The company’s rising AI usage could add to these costs. Rovo assisted actions increased 50% sequentially, while MCP calls rose 400% in the fourth quarter of fiscal 2026. Service Collection also recorded more than a 3x increase in agentic automation as customers expanded AI use into HR, legal, finance and marketing. Atlassian is working to lower the cost of running AI by using multiple models and managing traffic costs. However, the company still needs to invest in AI technology and infrastructure as usage increases.

Further, Atlassian also expects subscription annual recurring revenue (ARR) growth to slow to 18% in fiscal 2027, down from 23% in fiscal 2026. Management said the fiscal 2027 outlook reflects caution around the macro environment, fiscal policy and geopolitical conditions. While demand in the fourth quarter remained strong, the combination of slower ARR growth and a drop in GAAP operating margin could limit earnings growth and might weigh on Atlassian’s ability to turn its strong AI and enterprise demand into higher profits in fiscal 2027.

TEAM’s Earnings Estimate Shows Downward Trend

The Zacks Consensus Estimate for TEAM’s fiscal 2027 EPS is pegged at $5.76 per share, revised downward by 11 cents over the past seven days, indicating a year-over-year decline of 1.54%.

Similarly, the consensus estimate for fiscal 2028 EPS is pegged at $6.72 per share, revised downward by 4 cents over the past 30 days.

Image Source: Zacks Investment Research

TEAM Faces Stiff Competition

Atlassian is facing stiff competition from the likes of Monday.com, Freshworks and Salesforce, which are also expanding their work management, service management and AI offerings.

Monday.com competes with Atlassian in work management and collaboration. MNDY is expanding its platform beyond basic project management and is positioning its work management product as an AI workspace for teams. It is adding agentic AI features and expanding its CRM and service products. The company is also building an implementation team to help customers deploy AI products and expects this effort to help it win larger deals and more enterprise contracts.

Freshworks competes with Atlassian mainly in IT service management and enterprise service management. Freshworks’ Freshservice is used by more than 20,000 customers and covers ITSM, IT asset management, IT operations management and enterprise service management. Freshworks is also expanding beyond IT, with one-fifth of new EX seats coming from outside IT. FRSH is also using AI to strengthen its offering. More than 7,000 customers are paying for an AI SKU, while its AI Copilot attach rate on larger deals is above 70%. This shows that Freshworks is trying to win larger customers by offering faster implementation, AI features and a broader service platform.

Salesforce competes with Atlassian through its offerings such as Agentforce, Data Cloud and Slack, through which it creates a unified ecosystem and connects customer data with integrated AI across systems, apps and devices. In the first quarter of fiscal 2027, Agentforce’s annual recurring revenues (ARR) surpassed $1 billion, up in triple digits year over year. Salesforce expects this momentum to continue in fiscal 2027, on the back of robust customer demand for its agentic offerings.

The above-mentioned factors seem to have weighed on investors’ sentiments as reflected in a decline in TEAM’s share price in the year-to-date period. TEAM shares have lost 5% year to date, underperforming Zacks Computer and Technology sector’s growth of 17.6% and the industry’s decline of 1.9%. Year to date, Shares of Monday.com, Freshworks and Salesforce have lost 40.8%, 2.3% and 25.6%, respectively.

YTD Price Return Performance

Image Source: Zacks Investment Research

Conclusion: Sell TEAM Stock Right Now

Atlassian continues to see strong demand for its AI and enterprise offerings, but higher AI spending, lower expected GAAP operating margins and slower ARR growth could pressure profitability in fiscal 2027. Further, downward EPS estimate revisions and strong competition from Monday.com, Freshworks and Salesforce add to the near-term risks.

The above-mentioned factors, along with the company’s premium valuation, warrant a cautious approach to the stock, which makes this Zacks Rank #4 (Sell) stock less attractive in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Beyond Nvidia: AI's Second Wave Is Here

The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research