The Adobe Share Price forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

• I concluded last April 23 that Adobe’s stock deserved a 90-day price target of $380.
• ADBE is now trading above $405. You take your profits now.
• You may also hold on to your Adobe position. This SaaS company is pandemic-resistant. 
• My fearless forecast is that ADBE can zoom up to $430 before 2020 ends.
• The recent Q2 2020 earnings report saw Adobe achieve record $3.13 billion in revenue, and $2.27 GAAP EPS. Creative Cloud’s ARR grew to $7.93 billion.

I won’t fault you if you take your profits on Adobe (ADBE) now. My last buy recommendation for this stock was last April 23. ADBE’s closing price back then was $238.99. It is now trading above $405. My 90-day price target last April 23 was only $380. You are therefore justified to do some profit taking now. On the other hand, the record revenue of Adobe’s Q2 2020 convinced me that ADBE deserves a 1-year price target of $438. It’s therefore also a good option to just hold on to your ADBE shares.

ADBE now touts a YTD price return of 17.54%, and 1 year, 48%.  The chart below also shows ADBE has outperformed its sector peers in terms of its price return. 

My one-year PT of $438 is not too lofty. ADBE’s average one-year PT among TipRanks-tracked Wall Street analysts is $420.05. The highest one-year PT there is $470. J.P. Morgan recently raised its PT for ADBE from $325 to $430. We should heed the universal optimism of Wall Street analysts for ADBE. 

I also checked Adobe’s forecast at WalletInvestor. The technical indicators-driven AI of WalletInvestor is also very bullish on ADBE. It gave ADBE a one-year price target of $476.5. To convince you more that Adobe’s stock is still a buy, I proudly share that I Know First’s predictive AI algorithm is also super bullish for ADBE. A stock only needs to get a trend score of 100 to get a clear buy signal but ADBE’s one-year trend score from I know First is $479.93. More importantly, the predictability score is very high at 0.73. Going long on ADBE right now is still a good thing to do.

Yes, Adobe’s Stock is Expensive

The rally of ADBE after it did its Q2 2020 earnings report has made ADBE even more expensive than its SaaS (Software-as-a-Service) peers. Adobe touts higher valuation ratios than Autodesk (ADSK), Salesforce (CRM), Microsoft (MSFT), and Oracle (ORCL). Super bullish believers of ADBE has elevated this stock’s TTM Price/Book valuation to 17.14. This bias for Adobe is easily explained. Adobe is perceived as the best SaaS company right now. Its Creative Cloud software product is still a monopoly. 

Despite the relative overvaluation of ADBE, I remain highly confident that it can still go to $438 before 2020 ends. The pricey valuation of Adobe is mainly because of its Creative Cloud software products. ADBE is a buy because content is king. Adobe’s Creative Cloud subscription software service helps amateur create multimedia content for online, print, TV, film, broadcast, and video games. 

The massive Annual Recurring Revenue from Creative Cloud software subscriptions is still growing. Q2 ER says Adobe now boasts ARR of $7.93 billion. Adobe is a buy because it is pandemic-resistant. There’s COVID-19 headwind for most companies but Creative Cloud still boosted its quarterly revenue to $1.87 billion – up 17% year-over-year. Adobe’s Q2 revenue was $3.13 billion. Creative Cloud is still therefore Adobe’s greatest revenue generator at $1.87 million. Creative Cloud is also therefore Adobe’s biggest EPS growth driver. SaaS is a high-margin business and Creative Cloud is why Adobe operates at high margins.

The chart below illustrates that Adobe has higher valuation ratios because of its much better margins. Adobe’s gross margin of 85.80% is the highest among the stocks listed below. Only Microsoft’s 33.36% net income margin is higher than ADBE’s net income margin of 30.71%. This is understandable because Microsoft is also a hardware vendor and it has Azure, one of the world’s top cloud computing service provider. 

Conclusion

Adobe’s invidious position as a monopoly in content creation/design software. The persistent growth of Creative Cloud’s ARR means there are more people subscribing. Adobe will remain very profitable for many years to come because of Creative Cloud. The high valuation ratios of Adobe will only keep going higher as it becomes more profitable.

Lack of serious competition for Creative Cloud is why Seeking Alpha’s Quant Rating AI gave ADBE a Profitability grade of A+. ADBE is a pricey stock to own because its an extremely profitable company.

The chart above explains why you should still go long on ADBE. Adobe’s net income margin of 30.71% is well above the sector median of 1.85%. Adobe’s TTM Net Income Per Employee is $163.45k. This is more than 4,700% higher than the sector median of $3.35k.

Lastly, Adobe has what it takes to breach $438 before this year is over. The work from home initiative of many companies will force them to subscribe more to Adobe’s Creative Cloud, Experience Cloud, and Marketing Cloud platforms. The rise of video games activities due to COVID-19 will force more developers to increase their Creative Cloud subscriptions. Game developers will hire more 2D/3D artists, programmers, and game managers so they could create more PC, console, and mobile games. Consequently, more of these newly hires will require their own company paid-for Creative Cloud software subscriptions. 

No thanks to COVID-19, Adobe can wrap up FY 2020 with an EPS of $11. Using a forward P/E of 40x, ADBE should be worth $440. 

I Know First Past Success with Adobe Share Price Forecast

I Know First has been bullish on ADBE stock price forecast in past predictions. The I Know First algorithm issued a bullish outlook on April 23, 2020 The algorithm successfully forecasted the movement of Adobe’s shares and has risen by 20.72% until this week. See the chart below.

Here at I Know First, our AI-based algorithm has modeled and predicted assets price movement worldwide ranging from 3 days to a year. Since 2011, we have been providing daily stock market predictions and top stock picks. We also provide clients with gold outlook, euro to dollar forecasts, and, in particular, Apple stock forecasts. Today, we are producing daily stock algorithm forecasts for over 10,500 assets. These forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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