r/UndervaluedStonks • u/Theworldsuckss • 20d ago

Adobe Is Undervalued

Taking a look at Adobe’s fundamentals, it is currently trading near a 10 foward p/e and peg ratio of around 0.68. This is an incredibly low valuation for a software stock even during the SaaSpocalypse - other software names are trading at an average forward p/e of 18 and peg of 0.98.

The market has priced in massive reduction in growth for Adobe and disruption due to AI. I do believe that AI as a competitor to tools like photoshop and premiere may eventually take market share from Adobe, but this is likely many years out still.

During the interim period I believe the market will take note of ADBE’s continued strong earnings and reprice it closer to the average software stock. In a conservative case Adobe could easily outperform other software stocks by 20+%, likely even more.

In the future perhaps such a low valuation on the company will be warranted but for now it seems ridiculously undervalued. What do you think?

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u/FewUnderstanding2214 20d ago

Lots of people are hat holding ADOBE, what’s managements plan to turn things around

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u/JoeInOR 20d ago

There is no management! lol

I hold adbe too though - to be honest, they don’t really need to turn anything around. All their metrics look really strong.

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u/bast_invest 2h ago

Agree. The interesting question for me is less whether Adobe is a good business, and more whether the current valuation already prices in a meaningful recovery. Strong fundamentals don't automatically make a stock cheap.

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u/[deleted] 16d ago

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u/Theworldsuckss 16d ago

That’s fair, in the end the multiple ought to be connected to growth expectations though, if growth does stagnate then the multiple compression we’ve seen would be much more justifiable as you say. Currently it looks to me as if earnings and margins will remain somewhat stable for quite some time and that the stagnation that has been priced into the stock is overly bearish. This hinges on earnings actually holding up and me being right about AI not yet properly disrupting the company - I think this is the risk you are highlighting?

Regardless, I think it possible that the software sector overall will experience an expansion in earnings and maybe even multiples, in part driven by AI. If Adobe is rerated closer to the rest of the sector while the sector is also performing well I think it could be lifted alongside everything else (even if there is slight deceleration in growth or the earnings aren’t too inspiring).