Adobe shares fell by -1.6% during the day's morning session, and are now trading at a price of $495.42. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Adobe's Valuation Is in Line With Its Sector Averages:
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 30.01 and an average price to book (P/B) ratio of 3.91. In contrast, Adobe has a trailing 12 month P/E ratio of 42.0 and a P/B ratio of 15.16.
Adobe's PEG ratio is 1.98, 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.
Wider Gross Margins Than the Industry Average of 62.85%:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $9,030 | $11,171 | $12,868 | $15,785 | $17,606 | $19,409 |
| Gross Margins | 87% | 85% | 87% | 88% | 88% | 88% |
| Net Margins | 28% | 26% | 41% | 31% | 27% | 28% |
| Net Income (M) | $2,591 | $2,951 | $5,260 | $4,822 | $4,756 | $5,428 |
| Net Interest Expense (M) | $89 | $157 | $116 | -$113 | $112 | $113 |
| Depreciation & Amort. (M) | $346 | $757 | $757 | $788 | $856 | $872 |
| Diluted Shares (M) | 498 | 492 | 486 | 481 | 471 | 459 |
| Earnings Per Share | $5.2 | $6.0 | $10.83 | $10.02 | $10.1 | $11.82 |
| EPS Growth | n/a | 15.38% | 80.5% | -7.48% | 0.8% | 17.03% |
| Avg. Price | $235.04 | $279.32 | $415.97 | $560.61 | $441.62 | $495.42 |
| P/E Ratio | 44.52 | 46.02 | 38.02 | 55.51 | 43.6 | 41.74 |
| Free Cash Flow (M) | $3,762 | $4,027 | $5,308 | $6,882 | $7,396 | $6,942 |
| CAPEX (M) | $267 | $395 | $419 | $348 | $442 | $360 |
| EV / EBITDA | 37.04 | 34.22 | 40.09 | 40.77 | 29.94 | 29.69 |
| Total Debt (M) | $4,125 | $4,138 | $4,117 | $4,123 | $4,129 | $3,634 |
| Net Debt / EBITDA | 0.78 | 0.37 | -0.07 | 0.04 | -0.02 | -0.47 |
| Current Ratio | 1.13 | 0.79 | 1.48 | 1.25 | 1.11 | 1.34 |
Adobe benefits from rapidly growing revenues and a flat capital expenditure trend, generally positive cash flows, and wider gross margins than its peer group. The company's financial statements show a strong EPS growth trend and healthy leverage levels. Furthermore, Adobe has just enough current assets to cover current liabilities, as shown by its current ratio of 1.34.
