As we approach 2023, investors will be looking to buy stocks and add to their portfolios for the new year. Adobe ADBE appears to be sitting near oversold territory heading into December.
Adobe’s digital media solutions and publishing services are still heavily relied upon among creative content users and digital media professionals. ADBE is poised for steady growth going forward and it’s now trading 50% below its peaks and at valuation levels last seen a decade ago.
Adobe’s huge fall from its highs and continued decline is looking more and more like a buying opportunity. ADBE trades 51% from its highs at $330 a share, down from $678 per share last November.
Adobe shares are down -42% YTD to lag the S&P 500’s -18% and the Nasdaq’s -29%. Even so, ADBE is still up +831% over the last decade to crush the benchmark and the tech-heavy index.
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What is promising for Adobe is the company’s ability to beat top and bottom-line expectations despite a challenging economy. ADBE stock has been crippled with broader markets as inflation has weighed on consumer spending, especially on technology products and services. Adobe has also been recalibrated to reflect a higher interest rate environment.
With ADBE beating earnings expectations for 15 consecutive quarters perhaps the stock has been unfairly punished as investors strayed away from tech stocks during the course of the year. Taking a look at the company’s growth and valuation could be an indicator of such as Adobe has also beaten top line expectations for 9 straight quarters.
Outlook & Valuation
ADBE earnings are expected to rise 9% to $13.62 per share in 2022. Fiscal 2023 earnings are expected to pop another 11% to $15.18 a share. Top line growth is expected as well, with sales projected to be up 11% this year and rise another 9% to $19.19 billion in FY23. While top line sales have seen a bit of a slowdown this is still impressive growth for an already well established mature company.
At its current levels, ADBE trades at 29.4X earnings to roughly match its industry average that includes VMware VMW and Intuit INTU.
Even better, ADBE trades at a significant discount to its decade-high of 125.1X and well below the median of 45.9X. Following this year’s large decline ADBE also trades more reasonably than its 63.8X high saw earlier in the year. Investors are getting the opportunity to add Adobe shares at its lowest valuation multiple in years.
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ADBE currently lands a Zacks Rank #3 (Hold) going into December. The stock continues to trade attractively relative to its past and long-term investors who buy Adobe at these levels are looking more likely to be rewarded.
Solid top and bottom line growth are still expected despite economic headwinds in the broader economy. With that being said, the company’s ability to reaffirm this growth in its Q4 results on December 15 will be crucial for Adobe stock in the near-term.
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