Has Adobe Stock Quietly Become a Value Opportunity?

We think Adobe (ADBE) stock deserves consideration as a value stock. It is currently trading nearly 40% below its 1 year high, and also trading at a PS 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.

Here’s what’s going well for the company: Adobe’s Q3 2025 revenue grew, driven by AI-infused Creative Cloud Pro adoption, pushing AI-influenced annual recurring revenue past $5 billion. This innovation and pricing power ensure robust gross margins and record operating cash flow. However, valuation is discounted due to intensifying AI competition impacting market share, despite management raising FY25 revenue guidance.

So what does this translate to? Let’s talk numbers

• 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 20.3

Why focus on valuation and margin? Buying stocks with low valuations or trading well below their peaks but maintaining strong margins allows investors to capture mean reversion and valuation re-rating potential. The downside risk is potentially less because high-margin businesses can sustain earnings and recover faster when sentiment or market conditions improve. Below is quick comparison of ADBE valuation, margin and other fundamentals with S&P median.

LTM: Last Twelve Months

For more details and our view, see Buy or Sell ADBE Stock. When markets turn, single-asset exposure hurts. Smart financial advisors protect client wealth by working with partners who allocate across multiple asset classes – including the High Quality Portfolio.

Evidence Of Outperformance Of Value-Margin Play

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
• Strategy consistent across market cycles.

There is no guarantee that the market will always reward such value stocks, so useful to ask – what is the risk?

Risk Quantified

Adobe isn’t immune to big sell-offs. The stock plunged 72% during the Dot-Com crash and 67% in the Global Financial Crisis. It also fell 60% during the 2022 inflation shock. Even the milder shakeups in 2018 and Covid wiped out more than 25% each. So, no matter how strong the company looks, sharp dips are part of the ride 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.