We've been asking ourselves recently if the market has placed a fair valuation on Adobe. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
Adobe Has Elevated P/B and P/E Ratios:
Adobe Inc., together with its subsidiaries, operates as a diversified software company worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Adobe has a trailing 12 month P/E ratio of 46.7 and a P/B ratio of 14.84.
Adobe's PEG ratio is 2.16, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With Increasing Reinvestment in the Business:
| 2019-11-30 | 2020-11-30 | 2021-11-30 | 2022-11-30 | |
|---|---|---|---|---|
| Revenue (MM) | $11,171 | $12,868 | $15,785 | $17,606 |
| Operating Margins | 29.2% | 32.9% | 36.8% | 34.6% |
| Net Margins | 26.42% | 40.88% | 30.55% | 27.01% |
| Net Income (MM) | $2,951 | $5,260 | $4,822 | $4,756 |
| Net Interest Expense (MM) | -115 | -116 | -113 | -112 |
| Net Interest Expense (MM) | -$115 | -$116 | -$113 | -$112 |
| Depreciation & Amort. (MM) | -$625 | -$757 | -$788 | -$856 |
| Earnings Per Share | $6.0 | $10.83 | $10.02 | $10.3 |
| EPS Growth | n/a | 80.5% | -7.48% | 2.79% |
| Diluted Shares (MM) | 492 | 485 | 481 | 459 |
| Free Cash Flow (MM) | $4,087 | $5,308 | $6,893 | $7,396 |
| Capital Expenditures (MM) | -$334 | -$419 | -$330 | -$442 |
| Net Current Assets (MM) | -$3,737 | -$2,874 | -$3,793 | -$4,118 |
| Current Ratio | 0.79 | 1.48 | 1.25 | 1.11 |
| Long Term Debt (MM) | $989 | $4,117 | $4,123 | $3,629 |
| Net Debt / EBITDA | 0.38 | -0.05 | 0.06 | -0.0 |
Adobe benefits from growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and a pattern of improving cash flows. The company's financial statements show low leverage and a strong EPS growth trend. Furthermore, Adobe has just enough current assets to cover current liabilities.
