Adobe Stock Nears Buy Point On Cloud Computing Gains

Adobe (ADBE) is the IBD Stock Of The Day as the cloud software provider continues to post big gains in sales and earnings. Adobe stock is nearing a buy point.


The San Jose, Calif.-based company has averaged sales growth of 24% year-over-year for the past four quarters. Earnings-per-share growth has averaged 58% during that period.

Over the last 21 weeks, Adobe stock has formed a double-bottom base with a buy point of 260.82. Trading volume has been below average lately, but spiked when the stock cleared its 200-day moving average line on Jan. 31.

Adobe stock dipped 0.2% to 253.74 on the stock market today. It hit a record high of 277.61 on Sept. 14.

Adobe Stock Showing Relative Strength

Adobe stock has an IBD Relative Strength Rating of 86, meaning it has outperformed 86% of the stocks IBD tracks over the past 12 months. Its relative strength line remains high but has been trending sideways for several months.

Adobe makes digital media and marketing software. It’s best known for making creative tools such as Photoshop and Illustrator. The firm’s Acrobat software is the standard for online document sharing. In recent years, the company has transitioned from selling licensed software to offering software-as-a-service using a cloud-computing business model.

It will report its fiscal first-quarter results on March 14.

Adobe Story Has Become ‘More Controversial’

On Tuesday, UBS analyst Jennifer Swanson Lowe reiterated her buy rating on Adobe stock with a 12-month price target of 310.

“The Adobe story has become more controversial in recent months,” Lowe said in a note to clients. Investors are questioning the durability of its growth in annualized recurring revenue. They also are worried about expense growth implied in Adobe’s fiscal 2019 earnings guidance.

Lowe said she has increased confidence in the sustainability of Adobe’s annualized recurring revenue growth after a recent survey of customers by her firm.

Lowe believes operating-expense growth ticked up because of the company’s acquisition of Marketo. But operating-expense growth should normalize in fiscal 2020, she said.

Meanwhile, Adobe continues to be acquisitive. On Jan. 23, the company announced that it had bought Allegorithmic, the maker of Substance, the industry standard for 3D textures and material creation in game and video postproduction. Adobe plans to add those 3D design tools to its Creative Cloud software suite.


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