Let’s not mince words – Adobe (NASDAQ: ADBE) is a compelling buy at current levels. The company leads its sector, has exceptional fundamentals, is resting on a strong technical support level, and is trading at a valuation rarely seen for businesses of its caliber.
With shares down over 40% from their 2024 peak, Adobe may appear to be struggling. But this type of weakness often attracts savvy investors. Still, investing in any single stock comes with risk. You can reduce that risk and still participate in the upside with our High-Quality portfolio, which has significantly outperformed the S&P 500, delivering returns of over 91% since launch.
The Fundamentals? Still Absolutely World-Class
Adobe remains strong. Consider the following metrics:
- Revenue growth: Exceeds 10% annually
- Operating margin: Above 35%
- Net margin: 30%; comparable to or better than Apple
- Free cash flow margin: Greater than 40%
All of this comes with a P/E ratio below 25. That’s right, a sub-25 P/E for Adobe – one of the most reliable SaaS businesses out there. It’s a rare blend of quality and value that long-term investors seek.
Why the Drop Then?
Here are the main reasons for the recent decline:
- Guidance reset: Adobe lowered its 2025 outlook, contributing to the downturn, but that’s likely already reflected in the stock price
- AI mania rotation: Investors rotated capital from software to newer AI-focused stocks
- Valuation reset: The market moved from pandemic-era high valuations to more normalized levels
But none of these factors undermine Adobe’s core strengths and long-term prospects.
- Creative Cloud Suite remains the industry benchmark
- Switching costs: High, with workflows and agencies deeply integrated with Adobe tools
- Enterprise penetration: Strong and entrenched
- Recurring revenue: Backed by a dependable SaaS model
Why Now?
Beyond the compelling valuation, Adobe currently sits at a key technical support level that previously fueled rallies in 2020 and 2023. In 2023 alone, it surged nearly 80% from this price range. This isn’t just a number – it’s a historically proven base where market sentiment turns bullish.
Adobe stands out as a timely opportunity. That said, timing individual stocks is difficult – it’s hard to consistently buy at lows or sell at highs. A more consistent approach is to use a periodic, trigger-based rebalancing strategy like we implement in our High Quality Portfolio. With 30 curated stocks, it has regularly outperformed the S&P 500 over the last four years. Why? The HQ Portfolio delivers better returns with lower volatility than the index, as shown by the HQ Portfolio performance metrics.
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