Is Wall Street Underestimating Adobe Stock’s Potential?
Here is why we think Adobe (ADBE) stock deserves consideration as a value stock. It is currently trading nearly 38% below its 1 year high, and also trading at a P/S multiple which is below the average for the last 3 years. However, it has reasonable revenue growth and strong margins to go with its modest valuation.
- Reasonable Revenue Growth: 10.7% LTM and 10.5% last 3 year average.
- Strong Margin: Nearly 35.4% 3-year average operating margin.
- No Major Margin Shock: Adobe has avoided any large margin collapse in the last 12 months.
- Modest Valuation: Despite encouraging fundamentals, ADBE stock trades at a PE multiple of 20.7
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 | – |
| P/E Ratio | 20.7 | 23.6 |
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| LTM* Revenue Growth | 10.7% | 5.6% |
| 3Y Average Annual Revenue Growth | 10.5% | 5.3% |
| LTM Operating Margin Change | 0.3% | 0.2% |
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| LTM* Operating Margin | 36.2% | 18.8% |
| 3Y Average Operating Margin | 35.4% | 18.2% |
| LTM* Free Cash Flow Margin | 41.4% | 13.4% |
*LTM: Last Twelve Months | For more details on Adobe fundamentals, read Buy or Sell ADBE Stock.
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Stocks Like These Can Outperform. Here Is Data
Below are statistics for stocks with same selection strategy applied between 12/31/2016 and 6/30/2025.
- Average 6-month and 12-month forward returns of 12.7% and 25.8% respectively
- Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
- Not over dependent on market crashes. During non-crash periods as well, this strategy has 12-month average return of nearly 20% with 67% win rate.
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.