Adobe Stock Shows the Market Blues Don’t Affect the Quality and Value

The market we are eyeing now is not retreating – rather it is increasingly chasing quality and value. Although being considered a cyclical stock, Adobe (ADBE) possesses both. The renowned hi-tech pillar has released its recent quarterly earnings results. The company's shares are up almost 3% in just two days vis-a-vis a falling market. Adobe is an international IT company with a well-known and recognizable brand, a long history and a diverse portfolio of private and corporate clients. As of the first quarter of fiscal 2021, the company generated revenue from three main segments: digital media (~ 73% of revenue), digital technology (~ 24%), and publishing and advertising (~ 3%).

The digital media segment includes their most famous product, Creative Cloud, as well as Document Cloud. Creative Cloud is a diverse set of tools for creating, publishing and promoting digital content. The most well-known applications include Photoshop and Illustrator. Adobe Document Cloud clearly wins the competition against standalone companies in the same industry – such as DocuSign (DOCU). Adobe's historic success in implementing a cloud-based subscription model will continue to drive significant revenue growth for the company.

On Friday Adobe reported earnings per share of $2.32, beating the consensus forecast by 22 cents per share. Revenue of $3.84 billion (+ 22.7% YoY) also exceeded expectations by a comfortable margin of $110 million. The main segments’ revenues generated $2.79 billion, which is 25% more than last year. Document Cloud revenue was $ 469 billion, up 30% YoY. Adobe bought back about 2.1 million of its shares during the quarter.

By scaling and dominating in its business niche, Adobe continues to expand and capitalize on a good acclaimed product line that is well positioned vis-à-vis the competitors. At P/E of around 45 the company may look somewhat excessively valued, but for a well established high-tech company it implies a healthy upside.

Investment analysts are extremely unanimous about the upside of ADBE shares, calling the range of $ 630- $650, which implies an instant growth to the tune of 13-15% from the current levels.