Adobe Stock: Join the Rally at a 35% Discount

Adobe (ADBE) stock might be a good buy now. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Companies like this generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. The market tends to reward that.

What Is Happening With ADBE

ADBE may be down -4% so far this year, but the silver lining is that it is now 35% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago.

The stock may not reflect it yet, but here is what’s going well for the company: Adobe’s Q4 FY2025 results revealed substantial cash generation, with over $3.16 billion in operating cash flow. This strong performance is driven by enhanced pricing power, evidenced by June 2025 Creative Cloud subscription price increases that bundled expanded AI capabilities. Furthermore, the company reported over 25% year-over-year growth in customers generating over $10 million in annual recurring revenue (ARR). For FY2026, Adobe anticipates continued strength with guidance for over 10% year-over-year total ARR growth, reflecting robust customer adoption of its AI-infused product portfolio.

ADBE Has Strong Fundamentals

• 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.
• Revenue Growth: Adobe saw growth of 10.7% LTM and 10.5% last 3-year average, but this is not a growth story
• Available At Discount: At P/S multiple of 6.1, ADBE stock is available at a 35% discount vs 1 year ago.

Below is a quick comparison of ADBE fundamentals with S&P medians.

*LTM: Last Twelve Months

Don’t Expect A Slam Dunk, Though

While ADBE stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. ADBE fell about 72% in the Dot-Com crash, 67% in the Global Financial Crisis, and 60% during the inflation shock in 2022. Even the less severe dips in 2018 and the Covid selloff came close to 25%. This shows that no matter how strong a company looks, it can still take major hits in tough markets. 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.

If you want more details, read Buy or Sell ADBE Stock.

How We Arrived At ADBE Stock

ADBE piqued our interest because it meets the following criteria:

1. Greater than $10 Bil in market cap
2. High CFO (cash flow from operations) margins or operating margins
3. Meaningfully declined in valuation over the past 1 year

But if ADBE doesn’t look good enough to you, here are other stocks that also check all these boxes:

1. Visa (V)
2. T-Mobile US (TMUS)
3. ServiceNow (NOW)

Notably, a portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:

• Average 12-month forward returns of nearly 19%
• 12-month win rate (percentage of picks returning positive) of about 72%

Portfolios Win When Stock Picks Fall Short

Single stocks swing wildly but staying invested matters. A well built portfolio keeps you invested, captures upside and softens the blows from individual stocks

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.