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Opinions Stockchase Insights
Adobe SystemsADBEBUY ON WEAKNESSMay 31, 2024
Stockchase InsightsStock price when the opinion was issued
As of Oct 09, 2026. Market Open.
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They have bought back 10% of their shares and have grown over the past 6 or 7 years. Has a strong revenue growth of 10 to 12%. It has executed well but has received no credit from the market for this so is trading at one of lowest multiples historically. AI will benefit Adobe but it will take time.
Paul Harris, CFA
The market has been selling this, despite Adobe performing well: share buybacks to shrink the share count by 10% the past year, good earnings, growing net income and free cash flow. Net income has grown 15% annually the past 3 years. This proves that AI won't wipe out their business. This stock is undervalued. Shares are down today because the market (and he) wanted Adobe to hire an outsider as the new CEO. But this doesn't mean it's a sell.
Jim LebenthalThey bought back shares, 10% of the float, the past year which raises earnings. So what is their growth? Also, Adobe hired an insider as the new CEO. So, did an outsider not find Adobe more attractive enough for a CEO from another company to leave their current role? Doesn't know. This is why Adobe is in the crosshairs.
The narrative: subscriber growth has stalled and is now reversing, revenues under pressure, margins crushed, business is really struggling. None of that is true.
Every quarter of the last 4 has produced double-digit revenue growth. Adding 10-11k new, paid subscribers every day. Margins holding up nicely. EPS growth has been in the mid-teens for each of the last 4 quarters. Trading 8-9x PE. He's been adding.
Nothing, yet, to suggest that AI is hurting this business (though that might still happen). Investors are just shunning anything that's seen as under potential attack from AI. Nothing wrong with the business, but you wouldn't know it from the share price.
Martin Cobb, ASIP
Software stocks are at risk because of AI. Some software stocks will do OK because they have been beaten down so much. He sold Adobe two years ago because of the AI threat. Adobe is trying to benefit from AI but you can do the same things outside of Adobe. The CEO and CFO are leaving and he doesn't know if their replacements have been found.
His rule of thumb is that if a position goes south by 15%, they have to revisit the whole investment thesis. CEO quit. And if he loses faith, what have you got? Anticipates that, eventually, hardware companies will be looking at the software stocks to broaden their stables.
(Analysts’ price target is $327.00)Is trading at a very reasonable valuation. Is growing at double digits and buying a lot of shares. It was disappointing that the CEO is stepping down. The stock's valuation was way too high. He's bullish software--AI will unlock many benefits for software. The market has it wrong. But he isn't sure that Adobe is the best in this space. You can take a capital loss here and buy a better company. If you're long term, Adobe will be a tough one, but if you think the future will be the same as the past, then this is a screaming buy.
ADBE’s share price has been under pressure recently due to a combination of AI uncertainty and weak earnings from CRM which affected most SaaS companies. ADBE is trading at a 23.7x Forward P/E, which we think is a very attractive valuation for a high-quality business. We believe if investors are bullish on one name, the proper course of action is to stay the course and ride along with it, as the share price reaction after earnings is highly unpredictable - if the share price goes down and its fundamentals remain unchanged, investors could average into the position.
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