Adobe Ahead in the Cloud

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Posted: Aug 21, 2015 12:01 AM
Adobe Ahead in the Cloud

Adobe Systems (ADBE) reported strong Q2 earnings results on July 17, beating consensus estimates by $.03, coming in at $0.48 per share and delivering in-line revenue results of $1.16 billion. Adobe is a software company best known for its graphics products like Adobe Photoshop and of course their PDF (portable document format) which has revolutionized digital content.

Adobe has transformed itself from being just a software company to a Cloud company. Its flagship product is the Creative Cloud which allows the download of the latest version of all its Creative products like Photoshop, Illustrator and Design.

Its other two Cloud segments are the Marketing Cloud and the Document Could. Over the last 2 ½ years, Adobe has successfully transitioned from a software license model to a direct distribution, Internet cloud subscriber-based model and it has paid off. In addition, the Cloud model also allows users the capability to sync (Creative Sync) their work across their desktop and mobile devices.

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One of the big growth catalysts for the company going forward is the potential to migrate its Creative Suite 6 users to the Creative Cloud. There are now more than 4 million members in the Creative Cloud, up from 1 million in January of 2013. Cloud services help drive value expansion by generating higher revenue per user (ARPU). The Document Cloud is also gaining traction from its document sharing and signing capabilities. And finally, Adobe is expanding its markets and customer base with all these new offerings.

The accelerating trajectory of growth for the company has helped boost the share price as well, propelling it to performance levels far better than the software market in general. The stock price is up almost 18% versus only 2.6% for the DJ Software Index (DSSW).

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But let’s see how Adobe looks as a Best Stock Now.

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Data from Best Stocks Now app

Adobe has a market cap of $43 billion. It is a Large Cap technology stock and appropriate for Conservative investors.

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Data from Best Stocks Now app

The stock does have a high PE however of almost 27X earnings which gives it a Value Grade of B. But check out that almost 40% earnings growth rate! On a PE to Growth basis, its PEG ratio is a reasonable 0.71.

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Data from Best Stocks Now app

As mentioned, Adobe stock has been a stellar performer. Its Momentum Grade is B+ and its Performance Grade rates an A-. Over the last few years, Adobe stock has far outpaced the overall market’s return.

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Data from Best Stocks Now app

Adobe ranks #123 out of the more than 4100 names in the Best Stocks Now universe. It is ranked a BUY and receives an overall grade of A-.

Adobe has been a great stock to own over the last few years thanks to its forward-thinking, revenue enhancing Cloud-based business model. And based on new product initiatives there appears much more growth to come for shareholders.