Is Market Overlooking ADBE Right Now?
Here is why we think ADBE deserves consideration as a value stock.
- Reasonable Growth: 10.6% LTM and 10.6% last 3 year average.
- Cash Generative: Nearly 41.8% free cash flow margin and 36.4% operating margin LTM.
- No Major Shocks: ADBE has avoided any large revenue collapses.
- Modest Valuation: Despite encouraging fundamentals, ADBE trades at a PE multiple of 24.1
- Opportunity vs S&P: Compared to S&P, you get similar valuation but higher growth, and better margins
| ADBE | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| PE Ratio | 24.1 | 23.8 |
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| LTM* Revenue Growth | 10.6% | 5.0% |
| 3Y Average Annual Revenue Growth | 10.6% | 5.9% |
| Min Annual Revenue Growth Last 3Y | 10.4% | -0.4% |
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| LTM* Operating Margin | 36.4% | 18.8% |
| 3Y Average Operating Margin | 35.1% | 17.5% |
| LTM* Free Cash Flow Margin | 41.8% | 13.0% |
*LTM: Last Twelve Months
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
Does This Work?
- What Adobe Stock’s Low Earnings Multiple Is Actually Priced On
- History Has An Opinion On This ADBE Price Level
- ADBE Stock: Collect 12% While Setting A 30%-Off Buy Price
- The Wreckage And The Cash Register At ADBE
- The Options Market Says Adobe Stock Can Fall Over A Third Or Rise More Than Half
- Just How Wide Is the Risk Priced Into Adobe Stock?
For 65 similar value stocks chosen as of mid 2024, consider the following stats for the subsequent 1 year period.
- Average peak return of 39.3% vs 14.4% for S&P, with maximum peak return of 133%
- Win rate of 60%; win rate represents % of stocks with positive return
- Average 1-year return of 14.6%, similar to S&P’s despite tariff instability
But Consider The Risk
That said, Adobe has seen some serious drops in tough times. It fell about 72.5% during the Dot-Com crash and 67% in the Global Financial Crisis. During the 2022 inflation shock, the dip was around 60%. Even the less severe pullbacks, like in 2018 and the Covid pandemic, still wiped out about 25% of its value. So, despite all the good stuff going for it, Adobe isn’t immune when markets turn sour.
The Trefis High Quality (HQ) Portfolio, 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.