Adobe (NASDAQ:ADBE) is one of those stocks I wish I mortgaged the house on. In fact, I’m still kicking myself for not buying ADBE stock.
This realization comes after watching shares of Adobe stock explode from a January 2019 low of $215 to a recent high of $385.
Shares have fallen a bit over the past week or so back to the $356 area. However, even after this sizable run, ADBE stock is still a buy opportunity that could fetch up to $450 a share by the close of 2020.
Here’s why.
The Bull Case for ADBE Stock
At this point, it’s impossible to argue against Adobe stock. Taking a look at the company’s four quarter and fiscal year 2019 earnings report, consider how quickly the company is growing.
For one, revenue grew 21% year-over-year to $2.99 billion — which was slightly ahead of its own guidance for $2.97 billion. Also, non-GAAP earnings per share (EPS) were $2.29, which is better than estimates for $2.25. That said, according to guidance, Adode expects to post full-year fiscal 2020 revenue of $13.15 billion and non-GAAP EPS of $9.75 a share — which are both just below estimates.
“Adobe’s phenomenal performance in Q4 capped a record fiscal 2019 with revenue exceeding $11 billion,” president and CEO Shantanu Narayen said. “Adobe’s vision, category leadership, continuous product innovation and large and loyal customer base position us well for 2020 and beyond.”
Three High-Growth Segments for Adobe
Overall, what I like most about Adobe is its powerful position in software. The company sells a suite of products that just about every business uses. Additionally, what I like even more is the fact Adobe bundles products and offers them with a monthly fee.
There’s the Creative Cloud Business, for example. UBS analyst Jennifer Swanson Lowe said in a note to her clients that her firm surveyed more than 300 Creative purchasers, and the results provided good insight for Adobe’s future.
“The data shows both growing adoption and increasing ARPU (average revenue per user) within the Creative Cloud base,” she said. “We see this sustaining high-teens revenue growth and EPS growth greater than 20%.”
She also believes that new users and higher sales from existing users will be a powerful catalyst as well.
Furthermore, there’s the Adobe Document Cloud segment, which is growing rapidly as businesses begin to move toward digital documents instead of paper. There’s also the Adobe Experience Cloud, which provides cloud services to digital businesses.
Collectively, all three are seeing sizable growth — which creates more growth and larger margins for Adobe.
“Adobe has generated 20%-plus revenue growth and nearly 90% gross margins for each of the past several years,” as highlighted by InvestorPlace contributor Luke Lango. Better yet, the products aren’t met with a big amount of competition — if any at all.
The Bottom Line on Adobe Stock
In short, Adobe is a long-term winner that could continue trending higher. Given high demand for its products and powerful earnings growth, ADBE stock is one to buy and hold for the long-term.
With that in mind, I believe it could rally to $450 per share in 2020.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
