When Should You Buy Adobe Inc. (NASDAQ:ADBE)?

By
Simply Wall St
Published
January 23, 2022
NasdaqGS:ADBE
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Adobe Inc. (NASDAQ:ADBE) saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$688 and falling to the lows of US$500. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Adobe's current trading price of US$500 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Adobe’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Adobe

Is Adobe still cheap?

Adobe appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 49.33x is currently well-above the industry average of 40.05x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Adobe’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Adobe generate?

earnings-and-revenue-growth
NasdaqGS:ADBE Earnings and Revenue Growth January 23rd 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 45% over the next couple of years, the future seems bright for Adobe. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? ADBE’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe ADBE should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ADBE for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for ADBE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Adobe at this point in time. You'd be interested to know, that we found 2 warning signs for Adobe and you'll want to know about these.

If you are no longer interested in Adobe, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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