Down 22% YTD, Should You Buy the Dip in Adobe Stock? – TradingView News

Shares of software heavyweight Adobe Systems ADBE have crushed the broader long-term indices by a wide margin, up more than 660% over the past ten years and 2,180% since April 2004. That values ​​the tech giant at a market capitalization of $212 billion.

Despite the outsized gains, ADBE stock is trading 32% below its all-time high and is down more than 22% through 2024.

Bar chart

Let’s see if you should buy the dip in Adobe stock right now.

Adobe disappoints investors with first-quarter results

Adobe shares fell nearly 14% in one trading session following the company’s Q1 results for fiscal 2024 (which ended in February). While Adobe exceeded consensus estimates On the revenue and earnings front, a light second-quarter revenue forecast resulted in a selloff, marking the stock’s steepest daily decline since September 2022.

Adobe reported revenue of $5.18 billion and adjusted earnings of $4.48 per share in the first quarter of 2024. By comparison, analysts had expected revenue of $5.14 billion on earnings of $4 for the February quarter, 38 per share.

However, Adobe forecast second-quarter revenue between $5.25 billion and $5.30 billion, below consensus estimates of $5.31 billion. It also expected second-quarter earnings to be between $4.35 per share and $4.40 per share, below Wall Street estimates of $4.38 per share.

More broadly, Wall Street expects Adobe to increase revenue 13% year over year to $20.2 billion in fiscal 2024, and 11.5% to $22.5 billion in fiscal 2025 At the same time, adjusted earnings are expected to increase from $14.81 per share in fiscal 2024, to $17 per share in fiscal 2024, and to $19.20 in 2025.

Adobe hit by analyst downgrades

Following the less impressive revenue forecast, ADBE stock was hit with a slew of analyst downgrades. Bank of America for example BAC lowered its price target on the technology stock from $700 to $640, while reiterating its buy rating. The investment firm also expressed optimism about Adobe’s Firefly, a generative artificial intelligence (AI) tool that can create images.

Like other Big Tech companies, Adobe has joined the AI ​​race by launching an AI-powered assistant for applications like Adobe Reader and Acrobat, helping users better process information from long PDF documents.

In an investor note, Bank of America explained: “There is no change in our view that Adobe is a major AI beneficiary. While monetization is slower than expected, Firefly is one of the (most) widely used generative AI offerings, with multiple monetization options.”

Barclays B.C.S also lowered his price target for ADBE from $700 to $630, but maintained an ‘overweight’ rating on the stock. The brokerage firm expects the shares to recover and argued that they would buy the dip due to the underlying strength of the company’s Creative Cloud business. Finally, Morgan Stanley MRS maintained an overweight rating and a $660 price target.

What is the target price for ADBE shares?

Of the 31 analysts covering ADBE stock, 22 recommend a ‘strong buy’, one recommend a ‘moderate buy’, six recommend a ‘hold’ and two recommend a ‘strong sell’.

Bar chart

Given the forecasts, Adobe’s stock trades at 10x forward sales and 28x forward earnings – which is lofty considering analysts expect earnings to grow 12.6% annually over the next five years.

The average price target for ADBE stock is $626.31, which is 34.6% above Friday’s closing price.

As of the date of publication, Aditya Raghunath had (neither directly nor indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. For more information, please review the Barchart Disclosure Policy here.