Technical analysis — watching a stock’s chart and guessing when its price is due to rise or fall — is not where you want to be in the current go-go market. Exhibit A is Adobe Systems Incorporated (NASDAQ:ADBE) and the ADBE stock chart.
From a technical standpoint, you should be selling ADBE stock, as a sell-off seems “unavoidable.” Insiders are selling and it’s bordering on key levels.
Uh, no. Adobe is taking off again, as it expects the tax cut to give earnings a boost in the March quarter, raising its own earnings estimate to $1.43-per-share. The most recent “earnings whisper” on the company called for earnings of $1.11 per share.
But it’s not just taxes that are driving Adobe higher. It’s the fundamentals of the company, as it moves from being just a graphics company to the key driver of e-commerce.
ADBE Stock: The Nvidia of Software
As I wrote in December, Adobe stock is the Nvidia Corporation (NASDAQ:NVDA) of software.
Just as graphics processing chips have a wealth of other applications, from the cloud to cryptocurrency, so has Adobe’s graphics software been expanded into a marketing suite of unparalleled depth and breadth, accessible online and updated automatically.
An Adobe subscription is just something companies must have, if you’re a scaled company in any way.
Its most recent 10-K report is a thing of beauty. Sales were up 25%, and gross profits represented more than 85% of revenues. Take out normal expenses and net income came to 23% of revenue, or $3.38-per-fully-diluted share, up from $2.32-per-share the year earlier.
Barclays put a $221 price target on the shares as trading opened Jan. 23, and the company was already within $20 of it as trading opened, up from the Jan. 22 close at over $201-per-share of ADBE stock.
Put simply, Adobe has gone from a speculation to a nearly sure-thing, the kind of company you put in your account and ignore. Whether you buy the dip or buy the bounce, you buy.
Who Gets Credit?
Like Microsoft Corporation (NASDAQ:MSFT) and the Google unit of Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL), Adobe is led by a far-sighted Indian immigrant working a long-term plan.
Shantanu Narayen joined Adobe 20 years ago, after starting his U.S. career at Apple Inc. (NASDAQ:AAPL). He has been President of the company since 2005 and is still just 55, meaning Adobe has a long runway with him at the helm.
Narayen understood that, by moving Adobe to the cloud, he could expand the reach of its software. The company had moved, with computing, from typefaces to video editing, but in 2011, it had reached its limits on the path. Since transitioning to a cloud software player in 2013, ADBE stock is up 434%.
Products like the Adobe Experience Cloud have put it squarely in Gartner’s “Magic Quadrant” for digital experiences, adapting commerce websites like that of Home Depot Inc (NYSE:HD) to users’ every click.
Bottom Line on ADBE
Markets rise, and markets fall. The current market is rising, but once the cash from the tax cut is digested, it’s very likely to fall.
Despite that, Adobe stock looks like a winner. If you have an investment horizon of 5-10 years, this is one of the stocks you can buy, even in an up market, with confidence.
I can’t say that confidently of a lot of technology high-flyers. I can’t say that about Facebook Inc (NASDAQ:FB) and I can’t say that of Tesla Inc (NASDAQ:TSLA). That I can say it about Adobe stock, which was founded back in 1982, making it an old-line Silicon Valley giant in the heart of San Jose, is remarkable.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in MSFT.
