Adobe Stock Leadership & 36% Price Drop – Time to Buy?
Adobe (ADBE) stock deserves your consideration. Why? Because you get monopoly-like high margins for a discounted price. Here is some data.
- Revenue Growth: Adobe saw growth of 10.7% LTM and 10.5% last 3 year average.
- Recent Profitability: Nearly 42.2% operating cash flow margin and 36.2% operating margin LTM.
- Long-Term Profitability: About 39.0% operating cash flow margin and 35.4% operating margin last 3 year average.
- Available At Discount: At P/S multiple of 6.5, ADBE stock is available at a 36% discount vs 1 year ago.
While revenue growth helps, this is not a growth perspective. Pricing power and high margins generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. Market tends to reward that.
As a quick background, Adobe provides diversified software solutions worldwide, including Creative Cloud subscription, serving enterprise customers through Digital Media, Digital Experience, and Publishing & Advertising segments.
| ADBE | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| PS Ratio | 6.5 | 3.3 |
| PE Ratio | 21.8 | 24.1 |
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| LTM* Revenue Growth | 10.7% | 5.3% |
| 3Y Average Annual Revenue Growth | 10.5% | 5.3% |
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| LTM* Operating Margin | 36.2% | 18.7% |
| 3Y Average Operating Margin | 35.4% | 17.8% |
| LTM* Op Cash Flow Margin | 42.2% | 20.5% |
| 3Y Average Op Cash Flow Margin | 39.0% | 19.8% |
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| DE Ratio | 4.4% | 21.0% |
*LTM: Last Twelve Months
But do these numbers tell the full story? Read Buy or Sell ADBE Stock to see if Adobe still has an edge that holds up under the hood.
Quiz time: Over the last 5 years, which index do you think the Trefis High Quality Portfolio outperformed – the S&P 500, S&P 1500 Equal Weighted, or both? The answer might surprise you. See how our advisory framework helps stack the odds in your favor.
Stocks Like These Can Outperform. Here Is Data
Here is how we make the selection: We consider stocks > $10 Bil in market cap, and then filter out those with high CFO (cash flow from operations) margins or operating margins. We additionally consider only those stocks that have meaningfully declined in valuation over the past 1 year.
Below are statistics for stocks with this selection strategy applied since 12/31/2016.
- Average 12-month forward returns of nearly 19%
- 12-month win rate (percentage of picks returning positive) of about 72%
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.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ADBE Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. 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.