Having just celebrated 37 years of doing journalism from a home office, welcome everybody. Especially those of you who know how to use Adobe (NASDAQ:ADBE) tools.
Adobe, which began in the early 1980s with desktop publishing, has become the safe haven for both investors and workers afraid of the coronavirus from China. The shares opened March 5 at $355 each, still up for the year. The market capitalization is $173 billion on 2019 sales of almost $11.2 billion.
That’s a huge premium for a company without a dividend. But analysts expect Adobe to keep rising, with 17 of 22 at TipRanks saying you should buy it, even with a price target just 1% above its latest trade.
Analysts are bullish because the coronavirus is making what could become permanent changes in how the world does business. The Mobile World Congress in Spain was cancelled last month. Now tech conferences are being taken out left and right, including Adobe’s own Summit.
The move to “digital conferences” should especially benefit Adobe, whose Experience Cloud is the leader in creating presentations and other conference materials. Adobe now offers 50 different online applications.
Adobe has been a hot stock for most of the last decade. CEO Shantanu Narayen launched the new era in 2011 by ending sales of boxed software and making Adobe a software-as-a-service company. Over the last five years the shares have risen by 360%, twice the rate of Salesforce (NYSE:CRM), its best-known competitor.
The two companies were once far apart, with Salesforce focused on managing customer contacts and Adobe on presentations. Now they’re direct competitors, after Salesforce acquired companies like Krux, an ad management tool, and Adobe bought TubeMogul, a video ad platform.
So far neither side is losing. Adobe revenues rose 24% in 2019. Salesforce revenues rose 29% for its 2020 fiscal year, which ended in January. Both compete with Microsoft (NASDAQ:MSFT), which is over 10 times larger than either one and a key Adobe partner through its Azure cloud. There are regular rumors passed around that Microsoft will buy Adobe. But the price is too high and the current situation too good.
Where Is the Peak?
Previous telecommuting booms, like one after the Sept. 11, 2001, attacks, faded because many workers lacked the separate home offices telecommuting requires. Others felt that their career growth would be hampered by telecommuting.
This move may be longer-lasting. New research indicates telecommuting doesn’t stop people from advancing in their careers. New tools, including those from Adobe, let people be just as productive at home as in an office. Many companies that retain offices now allow employees to work from home at least a few times each week.
The real problem is Adobe’s valuation. Adobe is selling on March 5 at a trailing price-earnings ratio of 58, while the average stock in the S&P 500 sells at 23.2. Adobe’s rapid expansion, which requires a staff of 22,000, means it still has just $4.2 billion of cash. Maintaining competitiveness requires an aggressive acquisition strategy, with five deals in the last two years.
The Bottom Line on ADBE Stock
If you own Adobe, don’t sell.
But if you don’t own Adobe, don’t rush to buy.
This is a very expensive stock. As the rest of the market falls, it will look even more expensive. ADBE stock offers no dividend and won’t rise sharply in the face of a falling market.
Let the market find its bottom before you consider an investment. Adobe should be great for the long term. But the long term isn’t now.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.