Could Cash Machine Adobe Stock Be Your Next Buy?

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 stock is currently trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also below its 3-year average.

The stock may not reflect it yet, but here is what’s going well for the company. Adobe’s Q4 FY2025 delivered 10% revenue growth, with Digital Media ARR exceeding $19.2 billion. AI-influenced ARR surpassed $8 billion, driven by over 15% growth in monthly active users across Creative Cloud and Acrobat, and enterprise adoption of commercially safe Firefly AI tools by 75% of Fortune 500 companies. Remaining Performance Obligations of $22.52 billion provide revenue visibility, and FY2026 guidance projects 10.2% ARR growth, fueled by innovations like Project Neo and a 3x increase in generative credit consumption last quarter.

ADBE Has Good Fundamentals

• Good Cash Yield: Not many stocks offer free cash flow yield of 8.1%, but Adobe stock does
• Strong Margin: Last 12 month operating margin of 36.6%
• Growth: Last 12 revenue growth of 10.5% – low growth, but this selection is all about high yield and margin
• Valuation: ADBE stock currently trading at 54% below 2Y high, 19% below 1M high, and at a PS lower than 3Y average.

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

*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:

1. Salesforce (CRM)
2. Roper Technologies (ROP)
3. Fidelity National Information Services (FIS)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Dipped last month & meaningfully below 2Y high
3. Current P/S < last few year average
4. Strong operating margin with no instances of large margin collapse
5. 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

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.