Was The Smart Money Right About Atlassian (TEAM)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Atlassian Corporation Plc (NASDAQ:TEAM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Atlassian Corporation Plc (NASDAQ:TEAM) undervalued? Hedge funds were betting on the stock. The number of long hedge fund positions rose by 21 recently. Atlassian Corporation Plc (NASDAQ:TEAM) was in 69 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 62. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TEAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a gander at the recent hedge fund action regarding Atlassian Corporation Plc (NASDAQ:TEAM).

Do Hedge Funds Think TEAM Is A Good Stock To Buy Now?

At Q4’s end, a total of 69 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TEAM over the last 22 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Atlassian Corporation Plc (NASDAQ:TEAM), which was worth $1016.2 million at the end of the fourth quarter. On the second spot was Lone Pine Capital which amassed $800.6 million worth of shares. Tiger Global Management LLC, Melvin Capital Management, and Foxhaven Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Atlassian Corporation Plc (NASDAQ:TEAM), around 15.48% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, setting aside 7.17 percent of its 13F equity portfolio to TEAM.

Consequently, key hedge funds were leading the bulls’ herd. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, initiated the largest position in Atlassian Corporation Plc (NASDAQ:TEAM). Alkeon Capital Management had $185.2 million invested in the company at the end of the quarter. Daniel Sundheim’s D1 Capital Partners also initiated a $124 million position during the quarter. The following funds were also among the new TEAM investors: Brandon Haley’s Holocene Advisors, Josh Resnick’s Jericho Capital Asset Management, and Bo Shan’s Gobi Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Atlassian Corporation Plc (NASDAQ:TEAM) but similarly valued. These stocks are The Progressive Corporation (NYSE:PGR), Ferrari N.V. (NYSE:RACE), ABB Ltd (NYSE:ABB), Workday Inc (NASDAQ:WDAY), Takeda Pharmaceutical Company Limited (NYSE:TAK), Edwards Lifesciences Corporation (NYSE:EW), and PetroChina Company Limited (NYSE:PTR). This group of stocks’ market caps are similar to TEAM’s market cap.

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As you can see these stocks had an average of 32.3 hedge funds with bullish positions and the average amount invested in these stocks was $1475 million. That figure was $4933 million in TEAM’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 5 bullish hedge fund positions. Atlassian Corporation Plc (NASDAQ:TEAM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEAM is 82.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately TEAM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on TEAM were disappointed as the stock returned -2.4% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.