Technology stocks have mounted a comeback during the last week after the Nasdaq fell into a technical correction, down 10% from its mid-February highs. Wall Street began to step in and buy up beaten-down names, from Tesla
TSLA
to Nvidia
NVDA
after they were hit with a large, but likely healthy pullback after a year of massive gains.
The Nasdaq currently rests about 5% off its records, while the Dow and the S&P 500 have hit new highs. That doesn’t mean the market is immune from more selling, but the inflation worries might have been a bit overdone at the moment and the bullish setup for 2021 remains in place as the U.S. economy prepares to roar back.
Therefore, investors might want to consider buying strong, fundamentally sound tech stocks that are still trading at a discount. Today, we look at
Adobe
ADBE
ahead of its first quarter fiscal 2021 earnings release on Tuesday, March 23.
Profitable Creativity
Adobe is the company that invented the PDF and it went public in 1986. Today, the firm’s business-focused offerings have expanded into marketing, commerce, e-signature, and more. On top of that, its array of subscription-based creative and design software that includes Photoshop, Lightroom, InDesign, Illustrator, and other offerings are regularly regarded as irreplaceable.
ADBE’s suite of creative software are relatively unique in a crowded cloud software space and its customers range from large enterprises to school and individual consumers. More recently, Adobe has rolled out creative software offerings for the digital media age where high-quality content is paramount across websites, social media, and everywhere in between. The firm also in December completed its acquisition of a leading work management platform for marketers, of Workfront.
ADBE’s Creative Cloud offerings help provide a solid moat and consistent revenue streams. And the company is in the midst of an impressive streak of revenue growth.
Adobe beat our Q4 estimates in December, with its 2020 revenue up 15%. The growth followed four straight years of between 22% to 25% top-line expansion, with 15% expansion the year prior.
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What’s Next
Adobe’s FY21 revenue is set to pop 18% to $15.2 billion, with fiscal 2022 projected to climb another 14%, based on Zacks estimates. The top-line outlook would extend Adobe’s streak of roughly 15% or higher sales growth to eight-straight years, which is impressive for a company of its size and age.
The company’s adjusted earnings are projected to jump 11.5% and 18%, respectively during this stretch. ADBE also boasts a solid history of quarterly EPS beats. But its consensus earnings estimates have remained unchanged to help it grab a Zacks Rank #3 (Hold).
Bottom Line
ADBE does land “B” grades for Growth and Momentum in our Style Scores system and 11 of the 15 broker recommendations Zacks has for Adobe come in at “Strong Buys,” with none below a “Hold.” The company is also trading a discount to its own year-long medians in terms of both forward earnings and sales.
The reason its valuation appears more enticing is due in part to the fact that Adobe is trading 15% below its early September 2020 records. The stock has bounced back recently after it fell into oversold territory (underneath 30) in terms of RSI on March 8.
Adobe still rests below neutral levels at 48, which could give the stock that’s outpaced Apple
AAPL
and Microsoft
MSFT
over the last five years plenty of runway. All of this might make Adobe an appealing long-term tech buy that investors are able to scoop up at a discount.
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