On Monday, Adobe (ADBE) stock dropped like a rock, eventually closing the day down nearly 6%. Monday’s decline wasn’t limited to just ADBE, as all three major U.S. indices saw declines approaching 4%. However, for ADBE, Monday’s losses were a continuation of a bearish trend that has weighed heavily on Adobe stock for the past week.
Some analysts and investors have questioned the long-term viability of Adobe stock, noting that shares have been essentially flat over the past six months. Plus, from a technical standpoint, ADBE’s Relative Strength Index is below 30, which indicates that Adobe stock is oversold, and ADBE’s short interest is more than 4.3 million shares.
However, despite Monday’s market-wide panic-selling frenzy and last week’s roughly 3% decrease in Adobe stock, shares are up almost 5% over the past year, not to mention an impressive 170% over the past five years.
ADBE Is a Technology Big Dog
Adobe competes in a number of increasingly crowded tech arenas, and its competitors — nay, gladiators — are as dangerous and cutthroat as they come. Adobe has made great strides in the cloud computing industry to become a formidable contender beside the likes of Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL, GOOG).
Adobe products may not be front-page news, but this $37 billion software company develops and maintains more than two dozen specialized programs that cater to the varying needs of both individuals and businesses.
One of Adobe’s more impressive solutions is its Creative Cloud, an online suite of software for graphics and video designers, photographers, and web developers. Synchronized with ADBE cloud services, users can access files and works-in-progress from virtually anywhere, and they’re able more easily collaborate on projects thanks to real-time updating and sharing.
ADBE isn’t the only technology big dog to offer cloud-based software and real-time sharing, but for professionals in creative industries it’s definitely one of the most popular. Since the beginning, Adobe has led the pack in terms of cutting-edge document creation, editing and security, as well as digital image production and manipulation, not to mention web design.
Bottom Line on Adobe Stock
Although revenue isn’t broken down on a per-product basis, in June ADBE reported record quarterly revenue of $1.16 billion for its 2015 fiscal second quarter. Further, last week Adobe stock reached a new lifetime high of $87.25 per share thanks to bullish reports from analysts at Pacific Crest and RBC Capital Markets, prompting analysts at Rosenblatt to raise their price target on ADBE from $90 to $112. According to the report, “The price target of $112 is based on the price-to-earnings multiple of 28x on FY17 earnings per share of $4.”
Last month’s scandalous Adobe Flash security breach by the Hacking Team, demands by industry leaders that ADBE shutter the program, and the subsequently unanimous termination of Adobe Flash support by Internet big dogs was actually a non-issue for Adobe stock. More of a boon for media fearmongers than anything else, Adobe Flash was only estimated to account for a tiny percentage of ADBE’s total revenue.
Monday’s market-wide selloff was also a non-issue, as Adobe stock performance has since recovered about 1.5%. Overall, the recent dips seem to have been reactionary, little more than a ripple effect that swept across the larger market and happened to hit ADBE. In the long run, Adobe stock will continue to rise as the company strengthens its grip on the cloud computing and digital media creation markets.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.
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