Adobe Continues to Impress Investors With Rapid Growth

Stock (Symbol)

Adobe Systems (ADBE)

Stock Price


Data is as of
April 11, 2016
Expected to Report
Jun 21
Company Description
adobe_red_logoAdobe Systems Incorporated (Adobe) is a software company. The Company offers products and services for professionals, marketers, application developers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content. Adobe markets and licenses its products and services through app stores and its Website www.adobe.com. The Company’s operates in three segments: Digital Marketing, Digital Media, and Print and Publishing. In Digital Media, the Company is engaged in providing tools, services and solutions that enable to create, publish and promote their content. In Digital Marketing, the Company is engaged in providing solutions and services for creating, managing, executing, measuring and optimizing digital advertising and marketing campaigns. Adobe’s Print and Publishing segment addresses various market opportunities, including eLearning solutions, technical document publishing, Web application development and high-end printing. Source: Thomson Financial
Sharek’s Take
David SharekAdobe (ADBE) is impressing investors with rapid sales and profit growth. Last qtr the company put out 50% profit growth on 25% sales growth, beat street estimates of $0.61 by 5 cents, and upped both sales and profit estimates as the company is got more subscribers than expected. Adobe’s Digital Media division is the company’s largest and includes Adobe Photoshop as well as other programs to make pictures and videos. The company’s second largest division is Digital Marketing, where Adobe’s Marketing Cloud measures $7.50 of every $10 spent online with the top 500 US retailers. Adobe used to sell its product “in a box” and has now moved into a subscription model, which provides a recurring revenue stream. Subscription revenue is up from 27% in 2012 to 73% in 2015. Management can use analytics to see sales forecasts, and the company has a target of 30% profit growth/20% sales growth from 2015-2018. ADBE is one of the best growth stocks in the market. The stock is around it’s all time high, is expected to grow profits 30% long-term as well as 32% the next 4 qtrs, and sells for a reasonable 33 times earnings. In my opinion this company has the ability to grow 30% for the foreseeable future, with a revenue stream investors can count on.
One Year Chart
ADBE_2016_Q1Adobe tripped and fell during January & February as the stock market was in a wicked decline. But the stock rebounded swiftly, which is good. Still, I feel ADBE should be higher than this. Qtrly profit growth has been rapid the past few qtrs, and that’s the kind of growth that earns stocks P/Es of 45 or so. Profit estimates for the next 4 qtrs are 42%, 31%, 27% and 29% and the company has beaten the street in each of the last 4 qtrs. One thing not shown here is profits the past 4 qtrs were $0.48, $0.54, $0.62, $0.66 and estimates for the next 4 qtrs are $0.68, $0.71, $0.79, $0.85.
Fair Value
ADBE_2016_Q1_PHAdobe just got going with its subscription sales model a few years ago, and its taken some time for subscription revenue to grow, thus profits were suppressed the past couple of years. Now the company is on track and I envision consistent growth ahead. My Fair Value on this stock is currently 40x earnings, which equates to a Fair Value of $114 this year and $152 next year.
Bottom Line
ADBE_2016_Q1_10yrAdobe is leading the new digital age, as companies depend on its software to communicate with customers. Digital video is king, with digital ads being the queen. I continue to believe this is one of the best growth stories around, with the company having the ability to grow profits 30% a year in the foreseeable future. ADBE ranks 2nd in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
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Aggressive Growth Portfolio

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