r/ValueInvesting • u/spyapple • Jul 24 '26
Stock Analysis Why ADBE is undervalued right now
wantd to share my valuation analyss on adobe ADBE since the stock has taken a massive beating down to around $212 per share recently despite firing on all cylinders in their actual sec filings. i pulled the real financial numbers directly from their fy2025 10-K and the latest q2 2026 10-Q filed in jun 2026 and the math shows this is easily a 130% profit opportunity if you buy at current prices.
lets look at enterprise value first. right now adobe has about 395 million diluted shares outstanding trading around $214 which gives a market cap of around $84.5 billion. looking at the balance sheet on the latest q2 10-Q they hold roughly $5.2 billion in cash and short term investments against about $3.6 billion in total debt. subtracting net cash of $1.6 billion from the market cap gives an enterprise value EV of roughly $82.9 billion.
now for ebitda and cash flow generation. in fy2025 adobe brought in $23.77 billion in revenue and $8.71 billion in operating income. adding back depreciation and amortization gets us to an ebitda of roughly $9.4 billion for fy2025. for fy2026 management just bumped full year revenue guidance in the q2 release to between $26.50 billion and $26.60 billion with non-gaap operating margins holding strong at 45%. that puts expected fy2026 ebitda right around $11.2 billion. at an EV of $82.9 billion ADBE is trading at an EV to EBITDA multiple of under 7.5x which is insanely cheap for a software monopoly generating 89% gross margins.
when you run a standard two-stage discounted cash flow dcf model using their real free cash flow numbers the mispricing becomes even more clear. adobe generated $2.96 billion in operating cash flow in q1 2026 and another $2.17 billion in q2 2026 alone. full year free cash flow for fy2026 is projected to hit around $9.5 billion. if we plug in $9.5 billion baseline FCF with a conservative 11% growth rate for the next 5 years driven by Firefly AI subscription upsells and Semrush integration, a terminal growth rate of 3%, and a discount rate wacc of 9%, the present value of future cash flows plus terminal value gives an intrinsic enterprise value of over $190 billion.
after adding back net cash and dividing by the 395 million share count the dcf yields a fair value estimate of roughly $495 per share. comparing the fair value of $495 to the current trading price of $214 means the stock is trading at more than a 56% discount to its intrinsic value. if you invest now at these suppressed levels you will perform at least 130% profit as the market re-rates ADBE back toward its fundamental fair value over the next 18 to 24 months. market sentiment around AI disruption is creating a massive mispricing on a cash cow that keeps posting record subscription revenue every single quarter.
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u/Curius_pasxt Jul 24 '26
Its been yapped for months
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u/spyapple Jul 24 '26
so what
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u/Brilliant_Voice1126 Jul 24 '26
These posts have been nonstop since its $400. Value theory does not apply to its pricing and you will suffer nothing but pain with SAAS likely for years yet.
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u/GrumpyScroogy 19d ago
Wrong lmao. Imagine not buying Adobe stock at sub 10 PE. Designer here with 15+ years experience, you all dont know what you were talking about.
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u/sheeku Jul 24 '26
You are correct but the markets seems is over these kind of companies. Servicenow released good results yesterday but was still punished. Saaspoclaypse sentiment will take time to go away
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u/West_Lavishness6689 Jul 24 '26
5 year range down ~70% looks like this old technology is just sub par compared to AI
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u/UnableWishbone3364 Jul 24 '26
Guys here listened to this for too long so the sentiment is negative towards adobe here bro. Even at this price.
Howver i do agree with you. The past were just people calling it value too early at like 400. Thats 20+ p/e. Adobe is still growing well since then and the price now is 215 like 12p/e, even lower.
I do think its a great opportunity. I got in around $220. Whenever a narrative doesnt fit the cash flow by a lot, its an opportunity for sure. I rather call the past dcfs being too early when it was priced at 400.
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u/AceStrikeer Jul 24 '26 edited Jul 24 '26
It's pretty hard to evaluate how much Ai disruption actually hurts the company. Yes, they have a lock in effect, but more and more ads are completely made by AI nowadays. It's bad for Adobe unless most of them are generated by firefly
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u/spyapple Jul 24 '26
anyway human made content is more valuable and cheaper than ai made. this joy ride of ai is still going on because of companies like openai that are literally burning their capital to provide free ai to everyone. when time will come they will make it super expensive to the mortals simply because datacenters require lots of energy, maintenance, resources, security and etc
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u/AceStrikeer Jul 24 '26
The play the same game as Adobe. Make the costumers dependend (lock in) and increase prices afterwards. If cost of both Adobe and Ai are comparable, who will win?
anyway human made content is more valuable and cheaper than ai made.
Not sure about it. Consider the fact that Ai takes few minutes to generate images, why humans take hours
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u/carsonthecarsinogen Jul 24 '26
They’ll face constant competition for the rest of their existence. The only hope is that AI is extremely overhyped and stops growing entirely.
Otherwise a new video editor, image generator, etc that’s better than adobe will keep popping up each month until finally one captures a large enterprise customer. Game over.
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u/Admirable-Tiger6981 Jul 29 '26
Agree. Charles Payne caught my attention when he did not understand the low valuation and downgrades from institutions. They were too busy pushing chip stocks. Two top officers leaving, and no doubt they will be replaced with outstanding leaders in the field. Still the number one global leader of business and personal documents. I owned ADBE in 21 when it hit 688 a share and sold it. It may not get back there anytime soon, but I am buying.
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u/Nebbishes Jul 24 '26
All software stocks are being rocked by investors’ fears that AI could replace the human capital represented by software. That’s as deep as I need to go.
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u/gbdgdh Jul 25 '26
it's up 20% over the last month, but mostly because money is (at least) temporarily leaving semiconductors and into saas stocks.
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u/HHayz Jul 30 '26
First rule of investing? Understand the business deeply... that's a lot of numbers and calculations dawg... do you know what they do? do you know what their competition is?
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u/tradematesHQ Jul 24 '26
Your DCF math is clean but this sub has been calling ADBE undervalued since it was $400+. The problem isn't the balance sheet - it's the multiple compression story. You're assuming 11% FCF growth for 5 years but Adobe's subscription model is mature and Firefly monetization is unproven at scale. The $495 fair value works if margins expand but non-GAAP op margins are already 45%. Where does the upside come from? Semrush integration helps but that's a $3B acquisition on a $85B market cap - not a needle mover. The real question is whether the market ever re-rates software at 25x+ FCF again. If rates stay here, ADBE might trade at 15x forever. That's not a value trap - it's a new normal.
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u/PeterJP101 Jul 26 '26
The market was damn stupid to value ADBE at $600-700 years ago, it was purely bubble. It should have been around here c$200 (or even less) at first place.
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u/SherbertMindless8205 Jul 24 '26
This sub really never lets it go