With Strong Cash Flow, Adobe Stock Poised to Rise?
Adobe (ADBE) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market
What Is Happening With ADBE
ADBE may be down -11% so far this year but is now trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also belowits 3-year average.
The stock may not reflect it yet, but here is what’s going well for the company. Adobe reported record Q4 FY2025 revenue and projected over 10% ARR growth for FY2026. AI integration, through Firefly and Sensei, is accelerating customer adoption; monthly active users for AI features grew 35%. Record enterprise deals and the Semrush acquisition are also expanding its market.
ADBE Has Good Fundamentals
- Good Cash Yield: Not many stocks offer free cash flow yield of 7.3%, but Adobe stock does
- Strong Margin: Last 12 month operating margin of 36.2%
- Growth: Last 12 revenue growth of 10.7% – low growth, but this selection is all about high yield and margin
- Valuation: ADBE stock currently trading at 51% below 2Y high, 13% below 1M high, and at a PS lower than 3Y average.
Below is a quick comparison of ADBE fundamentals with S&P medians.
| ADBE | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 7.3% | 3.9% |
| Revenue Growth LTM | 10.7% | 6.4% |
| Revenue Growth 3YAVG | 10.5% | 5.7% |
| Operating Margin LTM | 36.2% | 18.8% |
| Operating Margin 3YAVG | 35.4% | 18.4% |
| PE Ratio | 18.8 | 24.1 |
*LTM: Last Twelve Months
But What Is The Risk Involved?
While ADBE stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Adobe’s stock fell 72% in the Dot-Com crash and 67% during the Global Financial Crisis. It also dropped 60% in the 2022 inflation shock. Even smaller sell-offs like 2018 and the Covid pandemic saw losses north of 25%. Solid fundamentals matter, but when the market hits turbulence, Adobe isn’t immune to steep declines. 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.
For more details and our view, see Buy or Sell ADBE Stock.
Stocks Like ADBE
Not ready to act on ADBE? Consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Dipped last month & meaningfully below 2Y high
- Current P/S < last few year average
- Strong operating margin with no instances of large margin collapse
- High free cash flow yield
A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:
- Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
- Win rate (percentage of picks returning positive) of about 74% for 12-month period
- Strategy consistent across market cycles
A Multi Asset Portfolio Gives You Safer Smarter Growth
Individual stocks can soar or tank but multi asset exposure steadies the ride. A spread out portfolio captures upside while limiting the damage from any one market.
The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which 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