Diversified software company Adobe Inc. (ADBE - Get Rating) in San Jose, Calif., is known for Creative Cloud and Photoshop. It has made consistent product and services developments and boasts market dominance. Last December, it was named a Leader in the IDC MarketScape: Worldwide Customer Data Platforms Focused on Front Office Users 2021-2022 Vendor Assessment.

However, the stock has declined 11.3% in price over the past six months and 18.7% over the past month to close yesterday’s trading session at $532.37.

Analysts have slashed their price targets on ADBE’s mixed fourth-quarter results and below-consensus outlook for fiscal 2022. Furthermore, on January 5, UBS analyst Karl Keirstead downgraded the stock’s rating to ‘neutral’ from ‘buy’ because he believes customers may have ‘pulled forward’ their spending in 2020 and 2021, which could hurt 2022 growth rates. So, ADBE’s near-term prospects look uncertain.

Here are the factors that could influence ADBE’s performance in the upcoming months:

Positive Developments

ADBE launched the Creative Cloud Express on Dec. 13, 2021. The unified task-based, web, and mobile product that makes it easy to create and share multimedia content. On Nov. 23, 2021, the company announced a significant partnership with Major League Baseball (MLB) to reimagine fan engagement. Also, ADBE announced on Nov. 18, 2021, that it is partnering with San Francisco-based startup Bolt to add one-click checkouts for retailers that use its e-commerce software tools.

Mixed Financials

For its fiscal fourth quarter, ended Dec. 3, 2021, ADBE’s total revenue increased 20% year-over-year to $4.11 billion. The company’s gross profit increased 20.3% from last year to $3.60 billion. However, its total operating expenses increased 18% year-over-year to $2.10 billion. And its net income decreased 45.2% year-over-year to $1.23 billion. Also, its EPS came in at $2.57, down 44.6% year-over-year.

Lofty Valuation

In terms of forward non-GAAP P/E, ADBE’s 38.54x is 57.9% higher than the 24.42x industry average. The stock’s 2.27x forward non-GAAP PEG is 35.6% higher than the 1.67x industry average. In addition, its 13.98x and respective forward EV/S and P/Sare higher than the 4.11x and 3.99x industry averages.

POWR Ratings Reflect Uncertainty

ADBE has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADBE has a C grade for Value, in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Momentum, which is consistent with its 18.7% price loss over the past month and 8.3% decline over the past three months.

ADBE is ranked #44  of 167 stocks in the Software – Application industry. In addition to the POWR Rating grades I have just highlighted, we have also rated the stock for Growth, Stability, Sentiment, and Quality. Get all the ADBE ratings here.

Bottom Line

ADBE is a famous player in the software space. However, its shares are currently trading below their 50-day and 200-day moving averages of $618.69 and $587.08, respectively, indicating a downtrend. Furthermore, the stock looks overvalued at the current price level. So, we believe it could be wise to wait before scooping up its shares.

How Does Adobe (ADBE) Stack Up Against its Peers?

While ADBE has an overall POWR Rating of C, one could check out these other stocks within the same industry with A (Strong Buy) ratings: Open Text Corporation (OTEX - Get Rating), Progress Software Corporation (PRGS - Get Rating), and Commvault Systems, Inc. (CVLT - Get Rating).

Click here to check out our Software Industry Report

ADBE shares rose $0.63 (+0.12%) in premarket trading Thursday. Year-to-date, ADBE has declined -6.01%, versus a -0.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

More Resources for the Stocks in this Article