After a stellar run in the past decade, growth stocks such as Adobe (NASDAQ: ADBE) have taken a breather in recent months. Since the start of 2011, ADBE stock has returned a monstrous 1,700% to investors. Despite these market-thumping gains, it's also down 20% from all-time highs, allowing you to buy the dip.
Let's see if it's time to buy Adobe stock right now.
Valued at a market cap of roughly $264 billion, Adobe is one of the largest companies in the world. It has managed to increase sales from just $9 billion in fiscal 2018 to $15.78 billion in fiscal 2021 ended in November.
In fiscal Q4 of 2021, Adobe reported sales of $4.11 billion, an increase of 20% year over year. Its adjusted earnings per share rose 14% to $3.20. Wall Street forecast the company to report revenue of $4.09 billion and earnings of $3.20 in Q4.
Adobe continues to expand its suite of products and solutions, resulting in higher customer engagement and retention over time. Its Creative Cloud business has over 20 different products while in recent years, the company has entered high-growth markets that include digital media. The company's sales grew 23% year over year in fiscal 2023, allowing it to end the year with operating cash flows of $7.23 billion.
Adobe is well-positioned to benefit from an increase in enterprise-related digital transformation spending. Its SaaS (software-as-a-service) revenue in fiscal 2021 stood at $12 billion, accounting for the majority of top-line. SaaS sales will also allow the company to derive predictable cash flows across business cycles.
A primary reason for Adobe's underwhelming performance in the last month is the company's less-than-impressive guidance. Adobe forecast revenue of $17.9 billion and adjusted earnings of $13.7 per share in fiscal 2022. Comparatively, Wall Street expected revenue of $18.16 billion and earnings of $14.26 per share in the next year. Adobe's decelerating revenue and earnings growth will weigh heavily on the stock price if this trend continues.
Despite the pullback, ADBE stock remains expensive and is trading at a forward price to 2022 sales of 14.7x and a price to earnings multiple of 40x making it vulnerable if markets turn bearish.
Adobe is a quality growth stock and a software heavyweight that should continue to outpace the broader markets over the long term. The recent dip in share prices should be viewed as a buying opportunity as it's impossible to time the market. Adobe is fundamentally strong and ended the year with close to $6 billion in cash which can be used to grow via acquisitions as well.
Analysts tracking the stock remain bullish on ADBE with a 12-month average price target of $672 which is 30% above the current trading price.
What is Adobe's market cap?
Adobe is currently valued at a market cap of $264 billion.
Does Adobe provide dividends?
No, Adobe does not pay a dividend to investors.
How much did Adobe stock rise in 2021?
Shares of Adobe rose by 13.4% in 2021.
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