Why Atlassian Stock Popped on Friday

Two Wall Street analysts "teamed" up to lift Atlassian Corporation (NASDAQ: TEAM) stock 2% through 11 a.m. ET Friday morning. In twin notes, both Goldman Sachs and Morgan Stanley urged investors to pile into Atlassian stock, which has been lagging the S&P 500 by 35% over the past 52 weeks.

Goldman Sachs' note reiterated its previous buy recommendation and $230 price target on the IT stock. Morgan Stanley, on the other hand, upgraded Atlassian stock from "overweight" to "top pick," with a new $224 price target.

Two buy ratings for Atlassian

According to Goldman Sachs, Atlassian is currently one of the "top five AI vendors" and is seeing "huge growth" from its artificial intelligence (AI) products, skilled at helping customers integrate Atlassian products with other AI products from vendors, such as Microsoft and ServiceNow.

Morgan Stanley (MS), in contrast, focused on the numbers in its note. Citing Atlassian's "steep discount to large cap Software peers on a growth-adjusted EV/FCF basis" (enterprise-value-to-free-cash-flow ratio), a consequence of the stock's poor performance relative to the rest of the stock market, MS says the stock is now bargain priced based on its expected 25% long-term growth rate in free cash flow (FCF).

Is Atlassian stock a buy?

Personally, I have reservations about the stock's valuation, but after running the numbers, I'm still inclined to agree.

On average, more than two dozen analysts agree with Morgan Stanley's belief that Atlassian stands to grow earnings and FCF at a 25% annual rate over the next five years. Meanwhile, the stock sells for a $47.8 billion valuation and is generating in excess of $1.4 billion in annual free cash flow.

That works out to a 34 times price-to-FCF ratio for Atlassian -- a bit more than I'd like to pay for 25% growth but not too crazy a valuation relative to its rivals. For comparison, Microsoft costs 42 times FCF and has a 15% projected long-term growth rate.

While clearly not "cheap," at the very least, I have to admit that Atlassian looks like a relative bargain.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian, Goldman Sachs Group, Microsoft, and ServiceNow. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.