Adobe is expected to release its earnings report on Thursday – but the expectations are already in. Analysts are expecting the company to beat their predictions on revenue for the fiscal third quarter. In the quarter that ended September 2nd, the estimation is that Adobe pulled in sales of $4.43 billion and an adjusted $3.40/share. With a net income of $1.1 billion, it was an impressive quarter for the company.
In fact, that record-breaking revenue figure is up a solid 12.7% year over year. According to Adobe chairman and CEO Shantanu Narayen, much of this growth has been fueled by a combination of groundbreaking technology and consistently creating and leading the categories they operate in.
And, the good news doesn’t stop there. The software company is investing in continued growth through a Figma acquisition. Figma is a design platform for teams who build products together. This $20 billion deal consists of both cash and stock. The hope is it will be completed by 2023 – but regulatory approvals and other closing conditions are contingent.
However, despite all the positive news, Adobe stock is struggling. Why is Adobe down over 50% in the last year despite record growth in revenue and a sizable profit? Looking at the short term, things only appear to be getting worse. The stock is down just about 30% in the past month, and 20% in the past week – with a sharp dropoff on September 14. So – what happened?
These days, it’s far less important how a company performs – what matters is how they perform compared to market sentiment or analyst expectations. Yes – Adobe had a great quarter, and the long-term trajectory looks to be positive. But, they did fall shy of expectations – and thus, the stock has been downgraded by two separate firms. Part of this goes back to the Figma deal. Some say the deal is too expensive compared to the potential return.
If you’re currently invested in Adobe – or are considering buying at a value – you may feel uncertain about your next steps. Fortunately, our stock analysis software can help you tune out the noise and just focus on what matters when investing – no guesswork, no emotion. Here’s what VectorVest says about Adobe:
Are Good Upside Potential & Safety Enough to Overpower Poor Timing?
Our system simplifies investing by boiling down everything you need to know about a stock into three easy-to-understand ratings. These are Relative Value (RV), Relative Safety (RS), and Relative Timing (RT). Put on a scale of 0.00-2.00, you can pick stocks with the highest VST ratings to win more trades. Here’s the current situation with ADBE:
- Good Upside Potential: With an RV of 1.21, the long-term price appreciation potential for Adobe stock is good. This is coupled with a forecasted earnings growth rate of 16% – which VectorVest considers to be very good.
- Very Good Safety: The relative safety rating takes into account the consistency and predictability of a company’s financial performance, along with the debt to equity ratio, business longevity, price volatility, and more. And with an RS rating of 1.35, Adobe is very safe. But, that’s the end of the good news for investors.
- Very Poor Timing: RT is a price trend indicator, calculated based on the direction, magnitude, and dynamics of a stock’s price. The VectorVest system looks at these factors day-over-day, week-over-week, quarter-over-quarter, and even year-over-year. And, as you can see by simply looking at an Adobe stock graph, the RT rating of 0.43 is very poor. The downward pressure on Adobe’s stock price is strong. Don’t try to catch a falling knife.
All this considered, Adobe has a fair VST rating of 1.05 – just above average. Another very important factor is the VectorVest valuation. Adobe has been significantly overvalued, as you can see in the chart above. So – does that mean investors should continue holding? Or, is it time to sell before the stock drops in price even further? Or, is this a good time to get into Adobe stock at a great value? The answer may surprise you – analyze Adobe stock free here to get a clear buy, sell, or hold recommendation!
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for ADBE, it has good upside potential with very good safety. However, it also has a very strong downward price trend pushing the stock lower and lower.
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