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Why Adobe Stock Rallied 4% Today


What happened

Shares of creativity and document-management software giant Adobe (ADBE 4.28%) jumped 4.3% today as of market close, compared to a less than 1% gain for the Nasdaq Composite on the day. This could be a temporary relief rally, though; the market remains in a sour mood as the Federal Reserve raises interest rates to try and tame inflation. Adobe stock is down some 44% from all-time highs as of this writing.  

Person in an office with art on the wall, using a tablet and a large computer monitor.

Image source: Getty Images.

So what

Adobe has been under pressure along with other growth stocks as the software titan’s growth rate slows. What was once an extremely high premium investment is now approaching a value investment. Shares currently trade for less than 28 times free cash flow as of this writing.  

Adobe hasn’t issued any specific financial information since the end of March. At that time, the company reported 9% year-over-year growth in the three months ended March 4, 2022. Excluding the extra week of business Adobe had in the quarter in 2021, growth would have been 17%. Adobe was also affected by Russia’s war on Ukraine as it suspended sales to the country.  

Now what

Adobe won’t report on its final quarter of fiscal 2022 until June. In the meantime, shares are likely to be at the whim of the market, which is trying to figure out how an aggressive pace of interest rate hikes from the Fed will impact the economy. Higher rates tend to lower the present value of growth stocks

The upshot, though, is that Adobe could be a fantastic long-term deal at this juncture. The company is a leader in providing cloud computing-based document management and software tools for creative types, marketers, e-commerce, and the like. In fact, during its next quarter, it believes year-over-year revenue growth will return to a mid-teens percentage growth rate, although adjusted earnings per share may grow at a slower pace as the company digests impacts from geopolitical events and invests heavily to promote future expansion.





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