Adobe Inc., the creative titan, isn’t just any tech company; it’s one that defied odds and soared into the stratosphere.

Software - infrastructure

Adobe Inc.

Mark Pukhov

September 28, 2024

Its stock has delivered jaw-dropping returns since inception and over the last five years—growth that gives chills to any investor who missed the boat.

81.63%

past 5 years:

244,275.10%

since inception:

But is it too late to hop on, or does Adobe still have plenty of creative fuel left to keep flying higher?

The big institutional players like Vanguard, BlackRock, and State Street are clearly onboard, but as any seasoned investor knows, we need to dive deeper.

After all, Adobe’s P/E ratio currently is no bargain, towering far above the value investor threshold of 15.

as of september 28, 2024

p/e ratio:

43.53

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This high price tag raises a tantalizing question: is the stock priced for perfection, or does it still offer value beneath its shiny surface?

Founded in 1982 by John Warnock and Charles Geschke, Adobe changed the world by introducing the PDF in 1993, and later, the game-changing Creative Cloud subscription model in 2013.

2020

2021

2022

2023

2019

The shift to a subscription-based platform wasn't just a business pivot; it unlocked recurring revenue that continues to drive Adobe's growth.

2018

18

19

16

13

SALES (B):

11

9

This consistent success is reflected in the company's impressive gross profit margin, which has remained above 85% for years.

GROSS MARGIN (%):

2020

2021

2022

2023

2019

2018

87.70

87.87

88.18

86.61

85.02

86.76

With operating and net profit margins above 26%, Adobe proves it can keep profits flowing as smoothly as its creative tools.

OM (%):

2020

2021

2022

2023

2019

2018

35

34

37

33

29

31

NM:

27

28

30

41

26

29

with a P/B ratio of 15.77 and a P/FCF ratio of 34.64—numbers that make value investors shudder.

But for the skeptics, those towering valuation metrics are hard to overlook,

Still, returns on equity and assets demonstrate effective capital utilization, signaling a well-managed company.

ROE (%):

2020

2021

2022

2023

2019

2018

34

33

32

40

28

28

ROA:

17

18

18

22

14

14

4.24

7.14

3.84

4.48

CASH & CE (B):

2020

2021

2022

2023

2019

2.65

In combination with the increasing cash reserves, this suggests the company is squeezing value out of every pixel.

2018

1.64

9

7

7

8

CAPEX/NI (%):

2020

2021

2022

2023

2019

13

If you're concerned about overspending, Adobe has kept capital expenditures well below the Warren Buffett-approved 25% of net income threshold.

2018

10

28

33

24

20

RETAINED EARNINGS (B):

2020

2021

2022

2023

2019

15

This means Adobe is highly efficient in turning profits into shareholder value without over-investing in infrastructure or wasting money.

2018

12

Now, let’s flash forward. According to CoinCodex, Adobe’s stock could reach $656.47 by 2025 and potentially hit a dazzling $2,204.40 by 2030.

These are bold projections, and with 19 hold ratings, 3 sell ratings, and 76 analysts giving Adobe a “buy” rating, optimism is high.

76

buy ratings

as of september 28, 2024

worst case

$349.08

base case

$454.17

best case

$593.81

But let's not get lost in the clouds—Adobe is overvalued, with intrinsic models showing it overpriced by 12% at best and 33% at worst.

As you can see Adobe isn't a bargain—you’re paying for premium software and for a premium stock, but its dominance in a growing creative market is undeniable.

6.5

4.4

3.9

3

STOCK REPURCHASES (B):

2020

2021

2022

2023

2019

2.7

Even without a dividend, Adobe's share buybacks are on the rise, reducing the number of shares and boosting the value of each one held.

2018

2

If you're a value investor searching for a hidden gem, this might not be your stock.

So, is Adobe’s stock worth buying today?

But for those who believe in the power of creativity, the potential of digital transformation, and the company's ability to sustain long-term growth, the stock might be a good choice.