Is Adobe (ADBE) Offering Value After Its Steep Multi‑Year Share Price Decline

• If you are wondering whether Adobe’s current share price lines up with its underlying worth, you are not alone. This article is here to walk you through that question clearly.
• Adobe shares last closed at US$263.97, with returns of 0.3% decline over 7 days, 10.9% decline over 30 days, 20.8% decline year to date, 43.1% decline over 1 year, and 23.9% decline over 3 years, while the 5 year return sits at 43.6% decline.
• Recent coverage around Adobe has focused on how investors are reassessing large software names as growth expectations and risk appetite shift across the sector. This has put more attention on what people are paying for future cash flows rather than just brand strength. In this context, valuation metrics such as P/E, price to free cash flow, and discounted cash flow models have come into the spotlight for the stock.
• On our framework Adobe scores a 5 out of 6 valuation check score, which you can see in full at this valuation summary. Next we will walk through the main valuation approaches behind that result before finishing with a different way to think about what the market might be pricing in.

Find out why Adobe's -43.1% return over the last year is lagging behind its peers.

Approach 1: Adobe Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today’s dollars to arrive at an implied value per share. It is essentially asking what Adobe’s projected cash generation is worth right now.

For Adobe, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about US$9.77b. Analysts and extrapolated estimates point to projected free cash flow of US$13.02b by 2030, with a series of annual forecasts between 2026 and 2035 that are discounted back to today using a required return.

Bringing all those discounted cash flows together gives an estimated intrinsic value of US$544.61 per share. Compared with the recent share price of US$263.97, the DCF output indicates Adobe is trading at a 51.5% discount to this estimate, which suggests the shares may be undervalued on this model alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Adobe is undervalued by 51.5%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Adobe.

Approach 2: Adobe Price vs Earnings

For profitable companies like Adobe, the P/E ratio is a common way to think about value because it links what you pay per share directly to the earnings that each share generates. It helps you compare how the market prices those earnings across different companies.

What counts as a “normal” P/E depends on what investors expect for growth and how much risk they see in the business. Higher expected growth or lower perceived risk usually supports a higher multiple, while lower growth or higher risk tends to pull it down.

Adobe currently trades on a P/E of 15.20x. That sits below the Software industry average of about 26.36x and well below the peer group average of 47.76x. Simply Wall St also calculates a proprietary “Fair Ratio” of 30.88x for Adobe, which reflects factors such as its earnings growth profile, profit margin, industry, market cap and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry because it adjusts for Adobe’s own fundamentals rather than assuming all software companies deserve the same multiple. Against that 30.88x Fair Ratio, the current 15.20x P/E points to Adobe trading below what this framework would suggest.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Adobe Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about Adobe, tied directly to your own assumptions for fair value, future revenue, earnings and margins, and then compared against today’s share price.

On Simply Wall St’s Community page, Narratives turn that story into a clear financial forecast and a fair value estimate. They are then set beside the current market price so you can quickly see whether your view suggests Adobe looks cheap or expensive, and decide if that means it might be a time to buy, hold or sell for you.

Because Narratives on the platform are updated when new information arrives, such as earnings or news, your fair value view is not static. It moves as the facts change instead of forcing you to redo a spreadsheet every time something happens.

For example, one Adobe Narrative on Simply Wall St currently assumes a fair value of about US$271.93 per share while another sits up near US$575.83. That spread shows how two investors, looking at the same company and price chart, can reasonably tell very different but well structured stories about Adobe’s future and act accordingly.

Do you think there's more to the story for Adobe? Head over to our Community to see what others are saying!

This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.

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