Overall, Adobe (NASDAQ:ADBE) stock checks all the bullish boxes. Like all good growth stories, it boasts powerful and consistent earnings growth over the years. The improving fundamentals have provided the fuel needed to generate one of the best price trends on the planet. Time and time again, ADBE stock has delivered eye-popping profits to shareholders.
That said, let’s break down the metrics that matter and offer up a trade idea for those that think $400 is on the horizon.
Stocks don’t rise from $70 to $370 over four years on fluff. Such longlasting gains are the byproduct of a company discovering how to slap rocket boosters on their sales and earnings growth.
ADBE stock is one such success story.
Consider, for instance, Adobe’s fiscal fourth-quarter non-GAAP earnings per share (EPS) growth for the past three years (2017 – 2019): $1.26, $1.83, $2.29. Furthermore, the company’s quarter-over-quarter performance proves equally impressive and provides the same takeaway. If the digital media and marketing software behemoth can continue its well-entrenched growth trend, then the future is very bright.
If this were a story of a little known company with explosive growth that Wall Street has not noticed yet, then it would be a compelling tale indeed. Unfortunately, investors are well aware of Adobe’s strengths and have rewarded their share price accordingly.
For example, ADBE stock has risen nearly 2,240% since its 2009 low.
Even if you strip out the 2008 debacle and subsequent recovery, Adobe shares have still climbed more than 650% since breaking above their 2007 high in 2013. Therefore, I think its safe to say investors have priced-in the business’s boom and then some.
ADBE Stock Charts
The weekly chart has everything you would expect from a rocket ship stock.
All major moving averages are rising to reflect buyers’ dominance across the field. The current upswing saw a substantial increase in momentum, signaling the trend is gaining steam. ADBE stock has rallied for fifteen of the last sixteen weeks, and jammed the RSI up to 72 in the process. The most persuasive argument against deploying new bull trades here is the stock’s overbought posture. There’s no doubt it could use a cooldown to digest the gains, but you could have said the same thing in December — and it’s risen for five straight weeks since.
That said, I don’t blame you if you’d prefer to wait for a lower-risk entry.
On the daily view, you can see how effective the 20-day moving average has been in providing support during the ascent. Dips have been shallow, and bulls have been quick to buy the few drops that have arisen along the way; Volume patterns have been supportive of the trend for months.
In the short run, ADBE has extended itself from the 20-day moving average. Therefore, I would not be surprised if we see some consolidation or a pullback, — as either development will create a more compelling chance to buy.
Buy Call Spreads of ADBE Stock
Options offer a lower-cost avenue for exposure if you think the rise in Adobe continues. Buy the April $370/$390 bull call spread for around $8. The risk is limited to the initial cost of $8 and the reward is $12, offering a potential 150% return.
That said, ADBE would need to rise past $390 by April expiration to capture the entire profit.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!