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Adobe, which began in the early 1980s with desktop publishing, has become a safe haven for both investors and workers who are afraid of coronavirus from China. The stock opened March 5 at $ 355 each, still up for the year. The market capitalization is $ 173 billion at 2019 sales of almost $ 11.2 billion.
It’s a huge premium for a company with no dividends. But analysts expect Adobe to continue to rise, with 17 out of 22 on TipRanks saying you should buy it, even with a price target just 1% above the latest trade.
Coronavirus is rising
Analysts are bullish because coronavirus is doing what could become permanent changes in the way the world does business. The Mobile World Congress in Spain was canceled last month. Technical conferences are now being held on the left and right, including Adobe’s own summit.
The transition to “digital conferencing” should particularly benefit Adobe, whose Experience Cloud is a leader in creating presentations and other conference materials. Adobe now offers 50 different online applications.
Adobe has been a hotbed for most of the past decade. CEO Shantanu Narayen began the new era in 2011 by ending the sale of boxing software and turning Adobe into a software-as-a-service company. Over the past five years, equities have risen 360%, twice as much as Salesforce (NYSE: CRM), its most famous competitor.
The two companies were once far apart, with Salesforce focused on managing customer contacts and Adobe on presentations. Now the direct competitors, after Salesforce acquired companies such as Krux, are an ad management tool, and Adobe acquired TubeMogul, a video advertising platform.
So far no one was able to send in the perfect solution, which is not strange. Adobe’s revenue increased by 24% in 2019. Salesforce revenue increased by 29% for the fiscal year 2020, which ended in January. Both compete with Microsoft (NASDAQ: MSFT), which is over ten times larger than one of them and a major Adobe partner through its Azure cloud. There are regular rumors that Microsoft will buy Adobe. But the price is too high and the current situation too good.
Where’s the top?
Former telecommunications barriers, such as the one following the attacks of September 11, 2001, faded because many workers lacked the separate home offices that telecommunications require. Others felt that their career growth would be hampered by teleworking.
This move may be longer. New research suggests that teleworking does not prevent people from advancing in their careers. New tools, including those from Adobe, allow people to be as productive at home as in an office. Many companies that maintain offices now allow employees to work from home at least a few times a week.
The real problem is Adobe’s valuation. Adobe will sell on March 5 at a subsequent price-to-earnings ratio of 58, while the average share in the S&P 500 will sell at 23.2. Adobe’s rapid expansion, which requires a staff of 22,000, means that it still has only $ 4.2 billion in cash. In order to maintain competitiveness, an aggressive acquisition strategy with five deals over the past two years is required.
The conclusion of the ADBE share
If you own Adobe, do not sell.
But if you do not own Adobe, do not rush to buy.
This is a very expensive stock. When the rest of the market falls, it will look even more expensive. The ADBE share offers no dividend and will not rise sharply in the face of a falling market.
Let the market find the bottom before you consider an investment. Adobe should be good in the long run. But in the long run, it is not now.
Dana Blankenhorn has been a finance and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in MSFT.