The Time To Buy Adobe Stock Is Now

Let’s not beat around the bush – Adobe (NASDAQ: ADBE) is a buy right now at these levels. This is a company that dominates its space, boasts elite fundamentals, is sitting on a rock-solid technical support zone, and yet, it is trading at a multiple you don’t often see for businesses of this caliber. 

Down over 40% from its 2024 highs, Adobe may look like it’s in trouble, but this is the kind of trouble smart investors love to buy. However, investing in a single stock, no matter how promising, is a risky endeavor. Consider diversifying that risk while still being exposed to the upside in our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.

Image by Kiều Trường from Pixabay

The Fundamentals? Still Absolutely World-Class

Adobe isn’t limping. It’s thriving. Let’s talk numbers:

• Revenue growth: >10% annually
• Operating margin: >35%
• Net margin: 30%;  that’s Apple-level profitability, in fact, more
• Free cash flow margin: Over 40%

And all of this is trading at a P/E ratio under 25. Yes, sub-25 P/E for Adobe – a company with one of the most bulletproof SaaS models in the market. This is the exact intersection of quality and value that long-term investors want to find.

Why the Drop Then?

Here’s the checklist of what dragged it down:

• Guidance reset: Adobe toning down its 2025 guidance was one of the triggers that led to the stock decline, but we think that trajectory shift is priced in now
• AI mania rotation: Wall Street took profits from software and threw much of it into new AI names
• Valuation reset: From sky-high multiples during the pandemic to more sober ones now

But here’s the thing – none of these issues are existential and are far outweighed by solid fundamentals and industry moats. 

• Creative Cloud Suite is the gold standard.
• Switching costs: High. Entire workflows, agencies, and enterprises are built around Adobe.
• Enterprise penetration: Deep and sticky.
• Recurring revenue: SaaS model with predictable, compounding cash flows.

Why Now?

Besides getting an excellent business at a reasonable price – here is another solid reason: Adobe is sitting right at a critical support zone, one that sparked major rallies in both 2020 and 2023. In the year 2023, it rallied nearly 80% from this base. This level is not just a price – it’s where the market has decided, twice, that Adobe is too cheap to ignore. And history has a way of repeating itself.

Adobe is presenting itself as a unique opportunity now. But you can not always time the stocks – you can not consistently catch the bottoms or exit at tops. A periodic and triggered based rebalanced portfolio is the right way to compound returns over time. This is exactly what we do with our High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.