Fans of Adobe Systems (Adobe Systems Stock Quote, Charts, News, Analysts, Financials NASDAQ:ADBE) might be rather grumpy these days, as the stock is down by more than a third since November even while the company appears to be firing on all cylinders. It’s time to take advantage of the pullback, says portfolio manager Kim Bolton, who says the stock should rally this year.
“This is one of those software-as-a-service type companies and you have to love a company that actually has a verb as one of its business lines, in Photoshop,” says Bolton, president of Black Swan Dexteritas, who spoke on a BNN Bloomberg segment on Tuesday where he nominated Adobe as one of his three Top Picks for the 12 months ahead.
Software giant Adobe got caught up in the general market rotation away from growth stocks, starting in November, when many of the big American tech firms took a hit as investors sought shelter in more defensive sectors. But Adobe had been an incredible performer for years, thanks to continued expansion in its product and services lines and solid earnings on a consistent basis.
How good has Adobe been? The stock returned over 500 per cent between late 2016 and late 2021, taking ADBE from about $100 a share to $650 by Q4 of last year. That’s when the pullback occurred and Adobe dropped below $450 by February where it has languished ever since.
Meanwhile, Adobe continues to impress operationally, with its business segments showing strong growth in its latest quarter, the company’s fiscal first for the 2022 year, delivered in March. Adobe’s Digital Media segment, which includes its creation, publishing and monetization tools like Photoshop and Illustrator along with its Document Cloud business in Adobe Acrobat and Adobe Sign, saw nine per cent year-over-year growth in revenue to $3.11 billion. And Digital Experience, which includes its digital advertising and marketing solutions and services, saw revenue grow by 13 per cent to $1.06 billion. All told, revenue was up nine per cent over the Q1, while net income was $1.27 billion and EPS was $2.68 per share.
The market apparently wasn’t that impressed with the results, however, as Adobe’s share price dropped on the quarterly release and has been drifting since.
“As far as we’re concerned, we had a great Q1,” said Adobe CEO Shantanu Narayen, in conversation with CNBC. “When you think about it in terms of the revenue growth, which was 17 per cent, when you look at Digital Experience, which is how we help enterprises with their engaging customers, subscription revenue growth on an adjusted basis was 22 per cent. The Document Cloud or PDF was 26 per cent year-over-year growth.”
“So, the business is fundamentally extremely strong,” Narayen said.
For Bolton, Adobe’s range of products and continued expansion is key to the company’s growth.
“It’s a one-stop shop for product design and content creation marketing, and they’re just the leader in that,” Bolton said. “They bought Magneto back in 2018 and that gave them entrance into the e-commerce side of things. Gartner Research actually has them as their number one pick on the digital commerce side.”
“It’s currently trading at $435 and we have a 12-month price target at $650,” he said. “This is a great one.”