Trade of the Day: ADBE Stock in for More Pain

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Adobe Systems Incorporated (ADBE) — After the close on Tuesday, the software maker announced a weaker-than-expected sales and earnings outlook for fiscal 2016. Management cited a stronger U.S. dollar and the effects of moving its final big products to the cloud.

In May 2013, the company said it would no longer offer updates to its flagship product, Creative Suite. Adobe’s plan was to move users to cloud-based software, thereby accelerating the shift to subscription-based income. However, this has weighed on total revenues.

For the upcoming fiscal 2016 year, ending in November, management projected adjusted earnings of $2.70 per share, below the consensus expectation of $3.21 per share. Their revenue estimate of $5.7 billion represents a 20% increase over the prior year but also fell short of the $5.9 billion the Street was expecting.

ADBE stock plummeted more than 10% in after-hours trading Tuesday before recovering some of those losses. But shares are still trading with a price-to-earnings (P/E) ratio of more than 30 times the company’s FY 2016 EPS estimate. Furthermore, volume appears to have peaked in a buying climax in September, and MACD is now overbought.

A gap exists beginning at $84, so that may be an excellent price to enter a short sale in ADBE stock with a trading objective of $72. If successful, the trade could return nearly 15% in a few weeks.

A stop-loss order should be entered at $86 to protect against a rally and potentially unlimited losses. As always, check with your broker for any unusual restrictions on shorting this or any other stock.

ADBE Stock Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/adobe-systems-incorporated-adbe-stock-trade-of-the-day/.

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