Adobe (NASDAQ:ADBE) Insiders Don't Seem to Like Their Own Stock

August 27, 2021
  •  Updated
November 27, 2022
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Adobe (NASDAQ:ADBE), has been in a stable bull run for the past eight months. The stock price has increased by 56% since its March 8th close. For investors, there are many ways to evaluate if the company is trading above or below fair value, such as looking at long term growth, comparing returns, doing a stock valuation, or other fundamental analyses. Alternatively, we can see if a stock is fairly valued by proxy - in our case, we will look at the behavior of insiders regarding their own company.

Although we don't think shareholders should simply follow insider transactions, we would consider it foolish to ignore insider transactions altogether.

A quick note on the mentioned fundamental metrics. According to our analysis, Adobe is:

  • Estimated to grow revenues at a stable rate of 12.8%
  • Has a Return on Equity of 40.3% and a Return on Capital Employed of 26.5%
  • Is 27.4% overvalued by our Free Cash Flow to Equity Discounted Cash Flow Model

Considering that the stock seems to have quite a bit of growth and returns behind it, our intrinsic analysis cautions that Adobe might be overvalued. This is why insider transactions are going to provide additional insight of the company weight.

Check out our latest analysis for Adobe

Adobe Insider Transactions Over The Last Year

The Co-Founder & Independent Director, John Warnock, made the biggest insider sale in the last 12 months. That single transaction was for US$3.4m worth of shares at a price of US$569 each.

That means that an insider was selling shares at slightly below the current price (US$652). When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was only 1.4% of John Warnock's holding.

Adobe insiders didn't buy any shares over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below.

If you want to know exactly who sold, for how much, and when, simply click on the graph below!

NasdaqGS:ADBE Insider Trading Volume August 27th 2021

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Perhaps the most important data point from this analysis is what we cannot see in the above chart. The fact that insiders have not bought any of the company's stock puts to question what they think of the future of the company.

Does Adobe Boast High Insider Ownership?

Many investors like to check how much of a company is owned by insiders.

Usually, the higher the insider ownership, the more likely it is that insiders will be incentivized to build the company for the long term.

Adobe insiders own 0.3% of the company, currently worth about US$827m based on the recent share price. Most shareholders would not be happy to see this sort of insider ownership, since it suggests that management incentives are not well aligned with shareholders.

Key Takeaways

Adobe is a stable, growing company with high returns.

Insiders own a very small portion - 0.3% - of Adobe which makes them committed to their compensation income, rather than the performance of their stock.

Insiders have sold on multiple occasions during the last 12 months, and more importantly, none of them has bought any of their stock.

So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. While conducting our analysis, we found that Adobe has 2 warning signs and it would be unwise to ignore these.

Of course Adobe may not be the best stock to buy. So you may wish to see this free collection of high quality companies.

For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.

Valuation is complex, but we're helping make it simple.

Find out whether Adobe is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.