Adobe Stock (ADBE) is another development stock that is down and for that reason mainly requested for me to analyse. I am happy to do that so I hope you delight in!
0:00 ADBE Stock Rate
0:54 Great Service
2:19 Adobe Stock Appraisal
6:43 ADBE A Buy Now
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I chuckled at the 16x sales. Even if the bull case eps growth plays out (which is possible), betting on na exit on 16x sales is a greater fool theory type stuff 😅
The only way MS could have come up with that number is only if they have an algorithm do the calculation based on historical numbers. I mean, I hope they don’t pay an analyst to write this crap 😂
Thanks Sven, sometimes I forget about the exuberance that we were in in 2019 before everything went stupid.
Thanks Sven. As a buyer of software for a large company (over 10K users), every chance we have to move away from Adobe products we take it. They have excellent products, but their pricing, licensing (especially the audits), and sales people are not pleasant. Of course many people will not move away from their products as they are good, personally I like Lightroom, however from an investing point of view, I cannot buy Adobe stock.
Audits?
Also: Adobe was found at 1985. The company pays no dividends, and has no room for growth. Subscription model sucks. I have cancelled all my subscriptions with them. The company is extreme woke. Ineffective management. Stale products. Avoid this company.
Thank you Sven. I love this company, not the stock price. I suggest you to check KLAC and ASML in the semiconductor market.
I was also going to suggest ASML
Sven, my question is how are all these completely different tech companies slowing down all at the same time? Amazon is cloud + e-commerce, Facebook is ads, Adobe is content creation, Netflix is streaming, etc. The only thing they have in common is that they are digital and online. And the answer is IMO that they aren’t growing slower. The growth was just pulled forward due to Covid. Mr. Market is looking at last year’s very high numbers and wrongly concluding this is a trend. In 1 or 3 years time the growth will be back as things are still moving online, etc. So IMO the current low valuations in tech are an excellent buying opportunity for the Intelligent Investor.
Beware of confirmation bias
Netflix looks like a giant value trap – good luck with a business that has 0 FCF, high CapEx (content), tough competition and a decrease in users…
Buying the best businesses at any price doesn’t produce good investment returns in the long run. I feel like Adobe falls into this category of “fantastic business” buy simply too expensive to be worth buying.
Hi Sven, thx for sharing. Just a question, why using EPS and not FCF or FCF/share? Thx!
PS: my vote for next stock to analyze is Crocs (CROX) =)
Same here, would love to see CROX
He explains the different possibilities in his template tutorial.
I also prefer to use FCF with conservative growth estimates and without factoring in terminal multiples.
ADBE generated 7b in FCF in FY 2021 and their FCF has grown 49% annually on average for the past 5 years and 30% the last 2 years, with FCF margins also increasing consistently and now sitting at 44%.
If their FCF grows 20% over the next 5 years (that is less than half the rate of the previous 5 years, and 2/3 of the rate over the past 2 years), then 10% over the next 5 years, and a meager 5% thereafter, discounting at 10% I get $390. In my view, this is already a conservative projection and shows the stock as fairly priced at today’s valuation.
Thanks Sven, love all your content!! Would be interested to hear your opinion on an asian stock that have been crushed recently named Gravity (GRVY, South-Korean stock). They have a current p/e and p/fcf of less than 7. They have ROA of more than 20% and ROIC of more than 30% and have had that for more than 4 years now. They have experienced very strong revenue and free cash flow growth for the past 7 years+
Hit me up I got something for you
my preferred short target 🙂 . Its also they clearly suffer from chaos caused by an aging software code base. As software gets old and many engineers of the original product left, this can be seen in many complex software products. Built on now legacy technology stacks it becomes harder and harder to maintain & extend while providing acceptable product quality. younger and more lightweight competition is grabbing market share in several areas, so I’d not bet too much on growth when calculating value ..
What companies do you mean by lightweight competition?
I have never understood the rationale behind using PE ratios in valuations: I prefer to value a company by simply discounting the cashflow it is projected to generate over a long period of time, without factoring in the multiple that the market decides to assign to it.
ADBE generated 7b in FCF in FY 2021 and their FCF has grown 49% annually on average for the past 5 years and 30% the last 2 years, with FCF margins also increasing consistently and now sitting at 44%.
If their FCF grows 20% over the next 5 years (that is less than half the rate of the previous 5 years, and 2/3 of the rate over the past 2 years), then 10% over the next 5 years, and a meager 5% thereafter, discounting at 10% I get $390. In my view, this is already a conservative projection and shows the stock as fairly priced at today’s valuation.
If their FCF continues growing at the current 30% rate for 5 years, then 15% for the next 5, and a meager 5% thereafter, discounting at 10% I get $650. This is optimistic in my view given market conditions, but not obnoxious at all given recent performance.
I am very comfortable adding shares at these levels.
Thank you for sharing your calculations!
I would love a video on a large consumer-staples company such as PG, Unilever, Colgate-Palmolive, etc.
These should be solid in any type of environment, but I’m unsure what valuation makes sense for low-growth, higher dividend stocks.
I know some people will be waiting until the market skyrocket again then they’ll start biting your fingers wishing they made the decision to invest. I just bought a house in Monaco and also got three rental apartment, earn on a monthly through passive income and got 4 out of 5 goals, just hope it encourages someone that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless of your age INVEST and change your future! Investing in the financial market is a grand choice I made.
@Dion walker exactly this. I’ve been telling all my friends and family this. I tell them imagine your 100 shares is a house. You still have the house. No matter if the value of the house goes down it’s yours. Hold it, don’t sell at a loss.
@Bimbo Jane Look her up on the internet and leave her a message she’s quite popular for her services as she was recently featured on cnbc. She can work with anyone irrespective of where your located
This is a shocker seeing Mary Freed Lorenz is being mentioned here. I always had mixed feelings about hiring a lnvestment advisor. For the record, I started working with Mary in 2019, and she manages about 70% of my lnvestments, while I manage the other 30%. My philosophy is that I care more about my own money than anyone else, but she made me accept that they have wealth of information on current conditions and future trends
@Sarah Aquirre Alright thanks……………. i will look her up right away
@Tammy Hamilton Yep. I’ve seen Warren Buffet give a similar analogy. Just because someone comes up with an offer to buy your house for $50 doesn’t mean you should freak out and sell it when you know its worth $50,000. The share price is what the market is currently paying but that is different to the intrinsic value of the business. If the fundamentals haven’t changed then it’s likely to recover even stronger in the long term.
We frequently use Adobe at my engineering firm for editing PDS’s. The software seems to be overpriced, but there doesn’t seem to be a substitute out there (at this time).
I absolutely love the business of adobe but the valuation is still just crazy high
I love how you describe why EPS ”doesn’t count” for every year. That took me some time to comprehend back in the day. I am loving the upload frequency Sven! As long as you are getting adequate rest that is 👍🏻
Uh, … do you care to explain? Will have to rewatch
Disney and Visa are on my watch list. I’d be interested in hearing about those two stocks
I invested in visa recently 😛
Biggest problem Abode is that everyone already knows it’s great company.
“If discounting terrific things are already in the stock, I don’t want to own it.” -Peter Lynch
“When you are making an investment decision, first focus on how much money you can lose and then look at how much money you can make. This basically means that managing downside risk is equally, if not more important, than return.” -Seth Klarman
This has been a core holding of mine since 2014. It is an erratic stock that tends to sell off on good earnings. It did get very pricey to me in fall of 2021 and I sold to rotate to oil. It’s on my buy list, but not right now.
Would love to see you analyze either Domino’s Pizza ( DPZ ) or VICI Properties Inc ( VICI ) or Costco Wholesale Corporation ( COST ).