Shares of Adobe Systems (NASDAQ:ADBE) have been pulling back lately. But with the election still going on, the dip is no surprise. Toss in the post-earnings correction in mega-cap tech stocks, and the decline in ADBE stock becomes even more reasonable.
No stock goes up forever, even though there are times where that seems to be the case. However, the simple fact of the matter is that stocks as a whole do tend to spend more time moving higher than moving lower. What’s more, the average return during the “up” years tend to be larger than the declines in the “down” years.
Seeing as though that’s the case, it makes sense for the high-quality companies to continue higher too. Luckily for Adobe investors, this stock is one of those high-quality entities.
And although there will be dips along the way, investors can expect Adobe stock to continue higher over the long term.
Breaking Down Adobe Stock
Management made a very important decision several years ago. Instead of offering a one-time purchase of its products, Adobe offered a cloud-based software subscription to its customers.
In turn, that was one of the smartest moves it could have ever made. Getting into the cloud was a brilliant move, while pivoting to a software-as-a-service (SaaS) provider allowed its valuation to burst higher.
If you haven’t noticed by now, SaaS providers carry a premium valuation.
However, the trends go beyond that. First, the number of creatives who use Adobe’s products seems to increase by the day. The novel coronavirus is putting an even larger emphasis on online work, design and development.
As a result, more customers are going to rely on Adobe to make their products attractive and to bolster their online marketing.
Finally, e-commerce is really taking off. For some reason, many investors seem to forget about Adobe’s e-commerce presence. And while the company isn’t on a platform out there selling products to consumers, it has plenty of exposure.
Take note of the chart above, which is from the St. Louis Fed. It shows that online sales have been making up a larger and larger portion of total retail sales. Despite the pandemic of 2020, we’ve seen online sales roar higher.
Moreover, Adobe’s acquisition of Magento for nearly $1.7 billion will “help them to create a full end-to-end eCommerce package for both B2C and B2B customers.” That comes after its deal to buy Marketo in 2018 for $4.75 billion. That deal was made to help Adobe gain an edge in B2B marketing engagement.
Lastly, Adobe Analytics covers traffic on 80 of the top 100 U.S. retailers. Aside from predicting record holiday spending this year, this is just one more demonstration of Adobe’s e-commerce prowess. So, with online sales booming, don’t forget about Adobe.
Bottom Line on ADBE Stock
Let’s not forget that, first and foremost, Adobe stock is a growth name. That’s why it has done so well in the past. But, let’s also not forget that it’s one of the larger cap tech names out there.
With a market capitalization north of $238 billion, this is no small entity. However, growth estimates remain stable despite the coronavirus disruption.
Consensus expectations call for revenue growth of roughly 15% this year and next year. That’s to go alongside 26% earnings growth this year and 12.5% growth next year. Those are solid, although not blowout expectations.
Therefore, Adobe stock isn’t one we want to chase as it screams to the upside; It’s not a young-gun growth stock.
However, with shares down 7% from the September highs, and down 3.5% from the October highs, Adobe stock is looking attractive. At the same time, ADBE is up more than 11% over the past three sessions.
Therefore, now is the time to consider Adobe stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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