Is Adobe Stock's 6.14X P/S Still Worth it? Buy, Sell or Hold?

Adobe ADBE shares are trading at a premium, as suggested by a Value Score of D.

ADBE stock is trading at a premium with a forward 12-month price/sales of 6.14X compared with the broader Zacks Computer and Technology sector’s 5.06X.

Adobe shares are pricier than its competitors, including digital marketing cloud provider Salesforce CRM and document services & e-signature provider DocuSign DOCU. Salesforce and DocuSign shares are trading at P/S of 5.62X and 4.73X, respectively.

Price/Sales Ratio (F12M)

Adobe shares have declined 21.3% year to date (YTD), reflecting the tariff related headwinds, negative impact of stiff competition in the AI and Generative AI (GenAI) space from the likes of Microsoft MSFT-backed OpenAI, as well as a lack of monetization of its AI solutions.

Adobe shares lagged Microsoft and DocuSign but outperformed Salesforce over the same timeframe. Microsoft, DocuSign and Salesforce dropped 12.9%, 17.5% and 27.2%, respectively.

ADBE Stock’s Performance

So, are Adobe shares worth buying at current prices? Let’s dig deep to find out.

Adobe Suffers From Stiff Competition, Lag in Monetization

Adobe’s AI business is minuscule compared with the likes of Microsoft and Alphabet. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in AI Copilot business. Alphabet’s Google Cloud is benefiting from accelerated growth across AI infrastructure, enterprise AI platform Vertex and strong adoption of Gen AI solutions.

Nevertheless, Adobe has expanded its AI portfolio with Adobe GenStudio and Firefly Services, which help brands and their agency partners collaborate on marketing campaigns. Adobe launched Firefly Video Model-powered Generative Extend in Premiere Pro, which leverages AI to instantly generate and expand the length of video and audio clips. Adobe introduced a new version of After Effects with a high-performance preview playback engine, powerful new 3D motion design tools and HDR monitoring. New Frame.io V4 upgrades include expanded storage that scales with teams.

Adobe plans to monetize standalone subscriptions for Firefly through the introduction of multiple Creative Cloud offerings that include Firefly tiering. Adobe plans to invest in its sales capacity to deliver Adobe-wide offerings across business, education and government. The integration of AI Assistant in Acrobat, Reader and Express bodes well for Adobe’s prospects. ADBE is infusing Gen AI innovations across its portfolio, including AI-first standalone and add-on products such as Acrobat AI Assistant, Firefly App and Services, and GenStudio for Performance Marketing. These factors are expected to boost top-line growth.

Adobe’s new AI book of business (more than $125 million exiting the first quarter of fiscal 2025) was a roughly low single-digit percentage of total revenues ($4.23 billion in the fiscal first quarter). ADBE expects this AI book of business to double by the end of fiscal 2025.

Adobe Offers Positive Guidance for FY25

For fiscal 2025, Digital Media Annual Recurring Revenue is now expected to grow roughly 11%. Digital Media segment revenues are expected to be between $17.25 billion and $17.40 billion. Digital Experience segment revenues are expected between $5.8 billion and $5.9 billion, while Digital Experience subscription segment revenues are expected between $5.375 billion and $5.425 billion.

Adobe reaffirmed its total revenue guidance, which is expected between $23.30 billion and $23.55 billion ($21.51 billion in fiscal 2024). Fiscal 2025 non-GAAP earnings are still expected between $20.20 and $20.50 ($18.42 per share in fiscal 2024).

ADBE’s 2025 Estimate Revision Trends Decline

For fiscal 2025, the Zacks Consensus Estimate for earnings is pegged at $20.36 per share, down by five cents over the past 30 days. The figure indicates 10.53% growth over fiscal 2024.
 

Adobe Inc. Price and Consensus

Adobe Inc. price-consensus-chart | Adobe Inc. Quote

The Zacks Consensus Estimate for second-quarter fiscal 2025 earnings is pegged at $4.96 per share, down by a penny over the past 30 days, suggesting 10.71% growth from the year-ago quarter.

ADBE’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 2.53%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Here is Why ADBE Stock is a Hold

Adobe’s deepening GenAI focus and innovative GenAI-powered portfolio are key catalysts. Hence, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term.

However, stretched valuation makes the stock unattractive for value-oriented investors.

The stock is currently trading below the 50-day and 200-day moving averages, indicating a bearish trend.

ADBE Stock Trades Below the 50-Day & 200-Day SMAs

ADBE currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable time to accumulate the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research