Atlassian (NASDAQ: TEAM) stock price continued its remarkable rally ahead of its quarterly results. The shares surged to $260 on Tuesday, meaning it has jumped by more than 120% from its lowest point in November 2022. This surge has pushed its market cap to more than $66 billion, making it the fifth-biggest Australian company after BHP, CBA, CSL, and NAB.

Atlassian is a leading software company that owns brands like Jira, Trello, Confluence, Compass, and Atlas. Its software products are used by thousands of companies and millions of users globally. They are mostly used in communication and project management.

Atlassian stock price has surged because of the rising M&A in the sector. For example, there is chatter that some private equity companies are considering placing a bid for DocuSign. Also, there are hopes that PagerDuty is on the verge of being taken out.

However, because of its size, there is almost zero chance that Atlassian will be acquired. It has also not expressed any interest in doing strategic review for its operations since it is growing steadily.

The most recent results show that the company’s revenue rose by 21.1% in the third quarter to $977 million. That revenue figure was about $12.4 million higher than what analysts were expecting. Its cash flow from operations came in at $167 million while FCF was $163 million.

Atlassian’s guidance was softer than expected but was in line with its history of being more conservative. The management expects that its quarterly results will be between $1.01 billion and $1.03 billion. Analysts see it coming at its mid-point of $1.02 billion. These results will come out on Thursday.

There are two primary risks for Atlassian stock price. First, the company is excessively overvalued. It has a forward PE multiple of 105, higher than the sector estimate of 24. Further, the forward EV to EBITDA stands at 75, above the sector median of 15.

Further, the company’s insiders are selling the stock aggressively. Data shows that the top leaders, including the co-CEOs, have sold over 1.02 million shares in the past three months and by 4.2 million in the past 12 months. At the current price, this means that they have sold shares worth over $1 billion. Insider sales are usually red flags, especially when there are no buyers.

Atlassian insiders are dumping the stock

TEAM chart by TradingView

The daily chart shows that the TEAM share price has been in a strong uptrend as tech stocks have rebounded. It has moved above the ascending channel shown in green. The shares have also surged above the 50-day and 25-day Exponential Moving Averages. 

Further, the Average Directional Index (ADX) has remained above 40, which is a sign that the trend is strengthening. The Relative Strength Index (RSI) has risen close to the overbought level. 

Therefore, the outlook for the stock is neutral with a bearish bias. If this happens, it could retest the key support at $218.2, its lowest point on January 3rd. The alternative scenario is where the stock continue rising.

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