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Nicholas Kitonyi
Nicholas Kitonyi
Articles (409)  | Author's Website |

Adobe Fails to Woo Investors

The stock is relatively unmoved despite topping earnings estimates

December 10, 2020 | About:

Shares of Adobe Inc. (NASDAQ:ADBE) remained shaky on Thursday morning. The creative software company reported its fiscal fourth-quarter and full-year 2020 results that topped analysts' expectations for both revenue and earnings.

The company's stock edged down 1.53% on Thursday morning despite the earnings beat. Shares are now up 68% since bottoming in March and 44% year to date. Adobe appears to be overvalued based on the Peter Lynch earnings line.

Highlights from recent quarterly results

For the fourth quarter, Adobe reported adjusted earnings per share grew 22.7% to $2.81. Revenue increased 14% from the prior-year quarter to $3.42 billion.

Revenue for the year was $12.87 billion, representing a 15% increase from fiscal 2019. Adjusted earnings of $10.10 per share were up 28.33% from $7.87 posted last year.

Looking forward, Adobe has provided fiscal full-year 2021 top-line guidance of $15.15 billion, which will represent 17.71% year-over-year growth. The company expects the bottom line to deliver another double-digit annual growth of about 10.9% to $11.20 per share.

The company's cash and cash equivalents stood at $4.48 billion at the end of the quarter, compared to $2.65 billion in 2019. This places the cloud software provider in a good position to capitalize on the rapidly growing market.

President and CEO Shantanu Narayen said that "as the undisputed leader in three growing categories - creativity, digital documents and customer experience management - we are well-positioned to capture the massive market opportunity ahead of us in 2021 and beyond."


From a valuation perspective, shares of Adobe are trading at a trailing 12-month price-earnings ratio of about 47.55. This is lower than the price-earnings ratios of close peers Shutterstock Inc. (NYSE:SSTK) and Autodesk Inc. (NASDAQ:ADSK), which trade at multiples of 52.28 and 145.49.

Adobe's forward price-earnings ratio of 42.88 is also lower than Autodesk's equivalent of 55.25. Shutterstock has not provided earnings guidance for the foreseeable future.

Looking further ahead, Autodesk's earnings guidance for the next five years appears to price the stock at more compelling multiples than Adobe. The company's PEG ratio of 1.67 is relatively better than Adobe's 2.37.

In summary, shares of Adobe appear to be slightly undervalued in the short term relative to close peers. However, when we factor in long-term earnings growth prospects, there is a possibility that the stock is slightly overvalued.

But short-term earnings projections are more realistic than long-term estimates. Therefore, Adobe could still be a good option to consider going into next year.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

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