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I'm Back To Adobe After Nearly 15 Years

Oct. 04, 2021 10:00 AM ETAdobe Inc. (ADBE) StockMETA, MSFT27 Comments


  • When I was in high school, I competed in a Moody's Math Challenge to create a $30,000 portfolio. Adobe was my pick.
  • After 15 years and a negative reaction to its recent bullish earnings, I'm focused on getting Adobe in my real (this time) portfolio.
  • The company's 90%+ revenue from subscriptions and tech industry-high gross margins combined with shareholder-friendly management have me giving Adobe the go-ahead.
  • The recent drop has Adobe squarely in a buy zone.
  • This idea was discussed in more depth with members of my private investing community, Tech Cache. Learn More »

Man with Apple Pencil holding in the hand iPad Pro
Prykhodov/iStock Editorial via Getty Images

After Adobe's (NASDAQ:ADBE) overall bullish earnings received a negative market reception, it finally lit up on my watch list. The consistent growth and handsome capital return to shareholders really brightens my day, and so it's hard not to put it on record

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This article was written by

Joe Albano profile picture

Joe Albano is a tech insider with a background and education in IT. He has a unique understanding of current technology and innovation trends as well as what companies are best positioned for future growth across all areas of tech.

Joe leads the investing group Tech Cache where he delivers industry insider expertise to those looking for the best long-term picks, trades, and technical analysis of tech and growth stocks. Features of the group include: access to Joe’s personal portfolio, 2-3 weekly investment ideas, a weekly summary and preview newsletter, watchlist stocks, an automated stock rating system, and live chat. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of FB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have no stock, option, or similar derivative position in ADBE, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivative in ADBE over the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

Thanks for the article, I like the arguments about subscription model, margins and management. Came here after yesterday's massacre - stock basically halved since the article is published last year. Not gonna ridicule or anything, but what do you think about recent move to acquire Figma for whopping 20 BILLION. Are you buying even more with barely 300/share? or any doubts for the future?
Joe Albano profile picture
@sly_badger I appreciate the desire to have a constructive conversation. Many others would have said "Nice, job it's down 46% since then, loser."

This article was a starting point for me to return to look at Adobe. One of its tenets was the consistent 20% growth. Well, that didn't exactly hold up past one quarter beyond this article's publication. So the story changed.

I'm still working through exactly the acquisition itself - synergies, growth of the combined company - and the price. The market would normally drop anyway on the news of an acquisition, it's part of the economic forces of M&A. The question is, what was the right amount of decline to price in the $20B leaving the balance sheet/dilution to shareholders?

I added a bit more to my IRA holding yesterday around $307. My average is well below $400 now ($375ish), so I'm content with not seeing the price from the date of this article as my cost basis. I still think once Adobe can move past the retail weakness in the market things will come back.
personally, I am thrilled to see it lower and lower (I do not have position, but would love to jump on the ship at 250 or lower! Damn I am tempted now...). The thing is, I am not so sure about their moat now, if they rush to buy some start up for 20 BN now (some say they better do it now, before MSFT does it, haha.). I understand that Figma provides some solutions Adobe doesnt do or not yet and overall this deal will be accretive after some time, but this looks like some desperate move now (with looming recession, rising rates, overall slowdown). On the other hand, some compare it to IG purchase by Facebook or YT by Google. We will see, still researching, lots of good summaries in Twitter. From what I read and can judge with my noobish nose, it seems the deal is a good direction to go, Figma seems to be loved by designers etc but the price paid is frowned upon... Ok, many thanks, don't stress with people saying crap :)
I invested $10000 in adobe 24 years ago I am now a millionaire...
DCF takes into consideration future earnings based on future bla bla blas of anaylsts using current macroeconomic parameters that will never apply in future. Therefore the first thing to look at is the Macro variables and where we are headed to. In this context almost all tech stocks are overvalued including this one and due to inflation somehow the rates has to increase. I am not sure how much of a collapse we will see in the markets and when we will see it but when it comes you will see much but much lower levels of value...
In my opinion this is a very well written, informative article. ( I am not an SA subscriber.) I am sharing it with my 18 year old grandson. I am hoping it allows me to have a discussion on $$ investments with him— there are learning points here for young and old. Never tooooo old to go long! (Just refuse to pay any subscription.)
Joe Albano profile picture
@jfetzko I appreciate this comment a lot. Let me know what comes of sharing it with your grandson.
@Joe Albano Grandson and Grandpa are struggling on this one, especially after the performance of ADBE the past several months. Let’s just say we continue to learn how difficult it is to pull the trigger on averaging down — and how much more time need pass before we say we need to move on.
Joe Albano profile picture
@jfetzko Grandson has plenty of time to stick with ADBE. Solid company, solid business, solid margins. The market is presenting any opportunity. And remember the market overreacts in both directions. I just started my ADBE position in my IRA at $435. Looking for more.
I agree that it is time to buy.
I bought more yesterday.
I don't know about this. ADBE is already at 47x PE!!
The stock looks like it is hitting support near here.
BUT, BUT, BUT the one observation that I would make to would be buyers is that there quite a few s/o and this is the BUT, it was through stock splits!!!!
6, 2:1 splits.
That, if my math is correct is the equivalent of 8 m/s/o at the IPO...
Management, well done.
P/E is a little high, but looking at today's trades, it looks like the shares are tightly held...
It's almost like why bother trading the shares...
Went on a walk with the head of an IT dept and she was complaining about how expensive their products are but that they would never change because essentially no other options exist. Talk about a moat! This company locks you in and makes you pay for the privilege. The purest play on the overall digitization of media imo. The lower it goes the greedier I will become. We shall see how the market reacts tomorrow before increasing my position. Adobe and CRM are unstoppable growth engines with few esg concerns and great management. Long ADBE CRM
Gary Gambino profile picture
Bought in 2000 at 15, sold in 2005 at 58.
Bought in 2011 at 26.50, sold in 2013 at $42.50

Thought I made pretty good trades. Oops. Since then I mostly learned not to sell secular growers just because they look expensive but it's still hard for me to buy something that looks expensive.
No Guilt profile picture
@Gary Gambino

I think everybody has stories like that. It’s painful!
Shangrila Value profile picture
Good analysis, but I think it's clear the before going higher, Adobe will touch the 400$ area again.
Joe Albano profile picture
@Shangrila Value Potentially. It's not out of the question.
Buyandhold 2012 profile picture
We have a difference of opinion on Adobe.

Mom thinks it's a buy because it is in the lower half of its 52-week price range.

I think it's a hold because the PEG is above 2.00.

Mom is probably right.
Joe Albano profile picture
@Buyandhold 2012 Mom knows best. Hard to find a time when my mom was wrong.
PauloCostaSilva profile picture
@Buyandhold 2012 Listen to Ma ... not Jack. The real Ma, your Mom :)
Mom is right. You are also right ... but Mom is righter !
Adobe could drop a little more but, a 12% drop makes it yummy already !
I've been long ADBE for a long time, but I would hold off buying here. The chart is awful.
Joe Albano profile picture
@jayurbain Nothing wrong with a little dollar-cost averaging to get into the game and hold for years.
super overvalued stock...not the right time to buy..
@MICHAELSONG I agree. Needs to drop more . . .
Mario Silva profile picture
@MICHAELSONG overvalued in terms of what? PER?, using DCF, this is a undervalued company with a intrisic value of around 650$ per share. Using comparative PERs is not so useful when the company is telling you that based on its free cash flows, it is still undervalued.
Joe Albano profile picture
@MICHAELSONG OK, that's fair. What's the price?
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