Adobe Stock Has Taken a Beating. This One Data Point Could Signal a Comeback.

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Adobe’s Creative Cloud Application Manager window.

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Adobe stock has been tanking lately — and it’s time to make a stand for it. If it can’t, long-term investors could be in for a world hurt.

Like many software stocks, Adobe (ticker: ADBE) has had a very tough few months. Since peaking at $688.37 on November 19, the stock has slipped 24%, worse than the iShares Expanded Tech-Software Sector ETF (IGV)’s 19% drop over the same period. Some of the decline is simply the result of turning sentiment—the rate hike is likely a way for investors to reconsider higher-valuation stocks—but Adobe’s pain has been well earned.

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While the stock had a stellar run after the pandemic — more than double its March 2020 low — when Adobe released fiscal-fourth-quarter earnings on December 16, shares were already peaking. It reported a profit of $3.20 per share, meeting forecasts, but offered guidance for first-quarter profit of $3.35, lower than estimates of $3.38. The stock fell 8.5% and has been falling ever since.

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Now this stock has a chance to stop its decline. At $520.60 per share, its 100-week moving average is sitting near $500. Evercore ISI technical analyst Rich Ross has served as support for the past nine years. And Adobe’s relative strength index — a measure of whether a stock is overbought or oversold — fell to 34 at the start of the week, its highest oversold level since 2011. Together, they can combine to push the stock higher.

This is the part where we want to point out all the fundamental reasons why Adobe stock looks like a buy. Unfortunately, doing so is not easy. Its earnings were disappointing enough, raising doubts, that it didn’t bode well for a stock that still trades at 36.7 times earnings. And Adobe isn’t ready to report earnings until March 22, so there’s not much to focus on except business—and the fact that an RBC survey showed it was one of the most popular shorts. .

Even the bulls seem subdued. After the miss, Evercore analyst Kirk Matterne, which rates the stock outperform, noted that Adobe Digital-Media missed out on annual recurring revenue, which makes it easy to argue that it was either under increased pressure from smaller competitors. faced or that COVID had spurred growth in 2020 and 2021, and was unlikely to do so any further. Yet the lack of more guidance was due to a stronger dollar and an additional week, writes Matterne, and not a meaningful downturn, though he acknowledged that the stock could face some tough times, at least in the near term. “We expect the stock to remain in the trading range until trading reverts to beat/rise mode,” he wrote.

Investors won’t get a real answer until Adobe reports earnings in March, but that hasn’t stopped them from trying it out. For example, Jefferies analyst Brent Thiel noted that an unnamed systems integrator had its best December ever, and continued to forecast growth of about 20% for calendar-year 2022, well below Adobe’s forecast. was faster than the 14% digital experience growth. It’s anecdotal, but it suggests that maybe Adobe can still turn things around. “ADBE is still a quality, large-cap growth story,” Thiel writes.

Nevertheless, we will be looking at that 100-week moving average. If it breaks, all bets are off.

Write Ben Levishon at [email protected]

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