Adobe stock price has plummeted in the past few months as competition in its business has continued rising. ADBE bottomed at $331 in August, down by over 44% from its highest level in 2024. A closer look at its performance shows that it is now trading at a bargain.
Why the Adobe stock price has crashed
Adobe, a company that used to be a darling among investors has slowly become a disliked name in the past two years.
There are two primary reasons for the ongoing performance. First, its core business has been disrupted by companies like Figma and Canva.
Figma, which recently went public, is now valued at over $26 billion, while the latest fundraising placed the valuation at of Canva at over $50 billion. This disruption is a major issue as Adobe’s business used to be praised for its moat.
Second, Adobe has struggled in the ongoing artificial intelligence hype. While it has invested in the AI space, recent results don’t show its impact. There are also fears that the AI trend will disrupt some of its business.
ADBE seems highly undervalued
While Adobe’s business is struggling, there are signs that the company is highly undervalued. First, the Adobe stock price trades at $354, much lower than the average estimate among analysts is $480, implying a 35% upside from the current level.
Brian Schwarz of Oppenheimer and Gregg Moskowitz of Mizuho see the stock rising to $460, while Brad Zelnick see it jumping to $475. The most bullish analysts are from Morgan Stanley, Goldman Sachs, and D.A Davidson, who see it jumping to over $500.
Other valuation multiples show that the company is undervalued, considering that its business is still growing. The company has a forward price-to-earnings (PE) ratio of 22 and 17 on a non-GAAP basis. The two numbers are lower than the sector averages and that of the S&P 500,
Adobe is also cheap based on the rule-of-40 multiple. On this, its trailing net income margin is 30%, while its revenue growth is 10.6%, resulting in a rule of 40 metric of 40.6%.
Adobe earnings ahead
The next important catalyst for the ADBE stock price is its earnings, which will come out on Thursday. Analysts expect these numbers to show that the revenue rose by 9.25% in the third quarter.
Its earnings will be $5.18, also higher than the $4.65 it made last year. Adobe has a long record of beating its earnings, meaning that its performance will be strong.
Most importantly, analysts expect that, despite its challenges, its annual revenue growth will be over 9.6% in the next two years.
ADBE stock price analysis
Adobe stock price chart | Source: TradingView
The daily timeframe chart shows that the ADBE share price could be on the verge of a strong bullish breakout in the near term. That’s because the stock has formed a double-bottom pattern at $332 and a neckline at $422.
Therefore, the stock will likely have a strong breakout, potentially to $422, its highest point in May. This breakout may happen after the company publishes its financial results.
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