Sometimes as an investor, the easiest way to avoid losing money is by not fighting a trend. And a stock like Adobe (NASDAQ: ADBE
), with its decade long annual growth rate of 32%, is a prime example. The $230 billion multimedia and creativity software giant has been around for a lot longer than many of its peers in Silicon Valley but it's punching with the best of them
Their latest earnings report from the middle of June showed double-digit percentage growth in revenue that many 37 year old companies can only dream of, particularly in a post COVID landscape. EPS was comfortably in the black while at $3.13 billion, the company posted a record revenue number that was up 14% year on year. Strong growth in the digital media and creative segments underline the success the company has had with innovation. There’s no doubt that they’re the market leader in their space and are used as the benchmark when industry peers are spoken about.
This is the ideal kind of revenue, profitability and market position you want to see in a company as mature as Adobe is. They’ve been there, done that, and clearly intend to keep doing so for the foreseeable future. With around 3 weeks to go until their next earnings report, it looks like everyone on Wall Street wants a slice of the pie.
Shares are up 10% over the past week and are up more than 85% since the lows of March. A 3.5% jump to all-time highs yesterday was enough to make it one of the top performers on the S&P 500. Recent upgrades and increased price targets from JPMorgan, Cowen and Wedbush have helped cement the bull case.
Wedbush summed up the situation well a few weeks ago, Adobe “has an entrenched leadership position in the cloud digital marketing and media landscape that is unparalleled with a massive installed base showing minimal signs of churn." The seismic shift to a work-from-home economy has done wonders for Adobe’s business model and future growth prospects. A strategic partnership, announced late last month, between Adobe, Red Hat and IBM (NYSE: IBM) appears to be feeding off this premise.
As Anil Chakravarthy, Adobe’s VP of Digital Experience said, "now more than ever companies are accelerating their efforts to engage customers digitally. We are excited to partner with IBM and Red Hat to enable companies in regulated industries to meet this moment and use real-time customer data to securely deliver experiences across any digital touchpoint, at scale and compliant with regulations." As part of the partnership IBM has made Adobe its "Global Partner for Experience" and will start using Adobe’s Experience Cloud platform to transform its own global marketing.
Investors getting involved at these levels have plenty to be bullish about but at the same time it’s worth noting the risks. Shares are a full 20% higher than where they were before the last earnings report and the tech market as a whole has started to look a little frothy.
Were some profit-taking and a general risk-off sentiment to creep into the market in the coming weeks we could be in for some short term volatility. This could be compounded if the numbers in Adobe’s next earnings report don’t justify the recent move while a price-to-earnings ratio of 62 is definitely on the higher side compared to the NASDAQ’s trailing twelve month average of 23.
Still that being said, any pullback from here should be viewed as a long term buying opportunity. Adobe does what they do very well and looks set to continue doing so for the long term.
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist
12 Stocks Corporate Insiders are Abandoning
An insider trade occurs when a corporate executive (such as a CEO, CFO or COO) that has non-public information about a company buys or sells shares of that company's stock. Company insiders are required by law to regularly report their stock purchases and sales to the SEC.
Tracking a company's insider trades is a metric that can be used to identify the direction that the company's executives believes that the company is headed. If a number of insiders sell shares of their company, they may believe that the company will have weak future earnings and that the share price will decline in the near future.
For example, if Microsoft's CEO, CFO and COO all recently sold shares of Microsoft stock, that would be an indication that there could be unreported news that may negatively effect Microsoft's stock price in the near future.
This slideshow lists the 12 companies that have had the highest levels of insider buying within the last 180 days.
View the "12 Stocks Corporate Insiders are Abandoning".