Adobe stock price has remained in a tight range in the past few days as investors reacted to the recent earnings. ADBE was trading at $350, inside a range it has been stuck at in the past few days. This price is about 40% below the highest point in 2024.
Adobe published strong financial results
Adobe, one of the biggest players in the software industry, published strong financial results last week
Its revenue rose by 11% in the third quarter to $5.99 billion, a record level that was in line with what most analysts were expecting.
Its digital media segment revenue rose by 12% to $4.46 billion, while its digital experience jumped by 9% to $1.48 billion.
Most notably, the company’s outlook was also much better than what analysts were expecting. The company expects that its revenue will be between $6.075 billion to $6.125 billion, a move that will bring its annual revenue between $23.65 billion and $23.70 billion.
Adobe’s digital media segment will make between $4.53 billion and $4.56 billion, while its digital experience segment will be between $1.45 billion and $1.515 billion.
Wall Street analysts expect the company’s growth will be steady this quarter. The average revenue estimate among analysts is $6.12 billion, up by 9% from the same period last year.
ADBE is supported by its attractive valuation
One of the main catalysts for the ADBE stock price is its attractive valuation. Data shows that the forward price-to-earnings ratio is 21, much lower than the technology sector of 31 and the S&P 500 Index’s 22.
The forward P/E on a non-GAAP basis is 16.85, also much lower than the sector median of 24. These valuation multiples are much lower than other popular companies like Salesforce, Microsoft, and ServiceNow.
Other valuation multiples are also not doing well. For example, the forward EV to EBITDA is 12, also much lower than the sector median of almost 15.
The same is true is with its rule-of-40 multiple, which looks at a company’s revenue growth and margins. Adobe’s forward revenue growth is about 10% compared to its net income margin of 30%, giving it a multiple of 40%. The multiple is much higher when considering its free cash flow margin of 36%.
Adobe stock price technical analysis
ADBE stock chart | Source: TradingView
The daily timeframe chart shows that the ADBE stock price has strong bullish technicals. It has formed a double-bottom pattern at $332, and a neckline at $422. A double-bottom is one of the most common bullish reversal patterns in technical analysis.
The Relative Strength Index and the MACD indicators have also formed a bullish divergence chart pattern, which happens when they are moving upwards during a bear market.
Therefore, the stock will likely bounce back as bulls target the neckline at $430, which is about 20% above the current level
The risk, however, is that the stock could be forming an inverse cup-and-handle pattern, which is a continuation pattern. If this happens, the stock could have more downside, potentially to below $300.
The post The bullish case for the cheap Adobe stock price appeared first on Invezz