One of the standouts of today's trading session was Adobe, which logged a -16.8% drop after announcing its earnings and the $20 Billion acquisition of its competitor Figma. The Software stock is now trading at $309.13 per share and is -32.72% below its average target price of $459.46. Analysts have set target prices for Adobe ranging from $362 to $540 dollars per share, and have given the stock an average rating of buy.
The market seems to share this optimistic view, since Adobe has a short interest of only 1.1% (this is the percentage of the share float that is being shorted). Each short position represents an investor's expectation that the price of the stock will decrease in the future.
When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.
Another way to gauge the sentiment on Adobe is to look at the percentage of institutions that are invested in the stock. In this case, 84.2% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.
Institutions have vast resources. If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.
Analyst coverage, short ratio, and institutional ownership say a lot about how the market views a stock. But markets can be wrong. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.
Here's a snapshot of some important facts to keep in mind about ADBE:
-
The stock has trailing 12 month price to earnings (Eps) of $10.16 per share
-
Adobe has a trailing 12 month Price to Earnings (P/E) ratio of 30.4 compared to the S&P 500 average of 15.97
-
The company has a Price to Book (P/B) ratio of 10.4 in contrast to the S&P 500's average ratio of 2.95
-
Adobe is a Technology company, and the sector average P/E and P/B ratios are 20.64 and 5.39 respectively
For more in-depth valuation analysis on this stock and others, subscribe to our free newsletter today.
