The software industry is expected to be bolstered by technological advancements and concurrently growing spending in the future. Adobe Inc. (ADBE), a software company, delivered outstanding results in the second quarter. Is the stock a good buy this week? Find out more ....
In the near future, the software industry is expected to thrive due to technological innovations and the increasing adoption of digitalized solutions. Gartner predicts that software spending will grow 12.3% by 2023.
Let's see if Adobe Inc. (ADBE), a software company, is a good addition to your portfolio.
ADBE is an international software company that operates in three segments: Digital Media, Digital Experience and Publishing and Advertising.
Adobe has been a pioneer in Artificial Intelligence for quite some years. It introduced hundreds of Adobe Sensei features to Creative Cloud, Document Cloud and Experience Cloud. This enabled customers to work, create and collaborate more efficiently.
Shantanu Nairayen, chairperson and CEO of ADBE, stated that "Adobe’s groundbreaking innovation positions us as the leaders in the new era generative AI, given our rich datasets and foundation models, and ubiquitous product interfaces."
For the second quarter fiscal 2023, ADBE’s new net digital media annualized recurring revenue (ARR), was $470 millions, while creative ARR increased to $11.64 Billion and document cloud ARR increased to $2.50 Billion.
Executive vice president Dan Durn and CFO of the company believes that these impressive results in the second-quarter have allowed them to increase their annual target.
For the fiscal year that ends in 2023, the company anticipates its revenue total to range between $19.25 and $19.35 Billion, and its non-GAAP earnings per share to range between $15.65 to $15.75.
The stock closed the last trading day at $477.48, up 39.9% in the past six-months and 28.6% in the past month. Wall Street analysts predict that the stock will reach $547.26 within the next 12 months. This represents a potential increase of 14.6%.
ADBE performance could be affected by the following factors in the coming months:
ADBE's total revenue for the second fiscal quarter ending June 2, 2023 increased by 9.8% over the previous year to $4.82 Billion. The gross profit of the company increased by 10.3% to $4.24billion from its previous value. The company's non-GAAP Operating Income increased 10.4% from the previous year to $2.18 Billion.
The non-GAAP net profit increased by 13.2% over the past year to $1.79 Billion. Its non-GAAP earnings per share increased 16.7% to $3.91.
Cash and cash equivalents were $5.46 billion for the third quarter, an increase of 62.1% over the previous year. As of June 2, 2020, the company's current assets totaled $9.27 billion. This is up from $8.99 billion on December 2, 2022.
Value for Money
ADBE's forward EV/EBITDA multiple is 22.87x. This is 17.2% less than the average for its last five years of 27.61x. The forward EV/Sales, and Price/Sales multiples of 11,40 and 11,53 are respectively 13.3% and 12.7% below its five-year averages.
ADBE's revenues have grown at CAGRs of 15.2% over the last three years and 17.8% in the last five. In addition, EBIT and Net Income grew at CAGRs of 18% and 9.5% over the last three years.
The industry average is 1.97%. ADBE's net income margin for the trailing 12 months of 26.34%, however, is much higher. The ROCE, ROTC and ROTA trailing 12-month figures of 33.68%, 20.61%, and 17.44% respectively are much higher than industry averages of 0.5%, 1.66%, and 0.02%.
Favorable Analyst Estimates
The consensus EPS estimates of $3.98 in the third fiscal quarter (ending August 2023), and $15.71 in the current year (ending Nov. 2023) represent 17% and 14.6% increases respectively.
The consensus revenue estimates of $4.87 Billion and $19.33 Billion for the same period reflect an improvement of 9.9% and 9,8% respectively. ADBE also exceeded consensus earnings estimates for all four of the previous quarters.
The POWR ratings reflect a promising outlook
No surprise, ADBE is rated B overall in our POWR ratings system. This equates to Buy. The POWR ratings are calculated by weighing 118 factors to the optimal level.
We also rate each stock using our proprietary system, which is based on 8 distinct categories. ADBE's grade for Quality is A, which is consistent with the company's strong profitability.
Analyst estimates that are favorable to Sentiment also justify its B-grade.
ADBE is ranked #18 out of 135 stocks in the Software - Application Industry.
Click here to view the ADBE POWR ratings for Growth, Value Momentum and Stability.
Software industry growth is boosted by the adoption of new technologies, including AI, Machine Learning, and Internet of Things.
ADBE is positioned to take advantage of massive market opportunities. Its ability to grow top- and bottom line while investing in innovative innovations, along with significant industrial tailwinds. This stock's robust fundamentals could make it a good addition to your portfolio.
How does Adobe Inc. (ADBE), compare to its peers?
ADBE is rated B, which equates to Buy. However, there are other stocks in the Software - Application sector that have been rated A (Strong Purchase): eGain Corporation, Inc., CVLT, and IBEX Ltd.
Our proprietary model reveals 10 stocks with a high downside potential. Make sure you don't have any of these "death trap" stocks in your portfolio.
ADBE shares traded at $476.38 a share Thursday morning. This was down $1.10 (0.23%). ADBE shares have gained 41.56% year-to-date compared to the S&P 500 benchmark index's 14.54% increase during the same time period.
Sristi Suman Jaswal is the author.
Sristi became interested in the stock market during her school years, and she went on to become a journalist. Her preferred strategy is to invest in stocks that are undervalued and have solid growth prospects over the long term. Sristi, who holds a Master's in Accounting and Finance hopes to improve her research skills and guide investors better after earning a degree.