Beaten down Adobe stock is a buy, this investor says

Paul Harris, portfolio manager at Harris Douglas Asset Management, says the recent selloff in Adobe (Adobe Stock Quote, Chart, News, Analysts, Financials NASDAQ:ADBE) has created an attractive buying opportunity.

Speaking on BNN Bloomberg’s Market Call on March 6, Harris said the stock has been pressured by concerns around artificial intelligence and the company’s failed attempt to acquire Figma, a deal that was ultimately blocked.

“Two things happened with Adobe,” Harris said. “They were going to buy Figma, but that got turned down by the Biden administration. I didn’t think they would be able to get it approved.”

Beyond the regulatory setback, Harris said investors have grown concerned that AI could disrupt Adobe’s business model. He believes those fears are overstated.

“People have this very similar thing that it’s going to be eaten up by AI,” he said. “But this is a company that continues to grow its revenue.”

Harris noted Adobe’s revenue has continued expanding at roughly a 10% pace while the company has also been returning capital to shareholders through share buybacks.

“It’s trading at a very low multiple,” he said. “It’s a product that everybody uses and is very familiar with, and people continue to use it.”

He added that investor expectations around Adobe’s AI initiatives may have become unrealistically high.

“One of the problems that Adobe did was that they actually talked about AI too much in their business as opposed to slowly letting their AI products show up,” Harris said. “So people have these very high expectations… and I think that’s what’s caused the stock to fall a lot.”

Harris said the decline presents a buying opportunity for investors willing to look past short-term sentiment.

“I think that’s a good buy here,” he said.

Shares of Adobe have fallen about 38.3% over the past 12 months and 41.4% over the past five years. Among analysts covering the stock, 23 rate it “Buy,” 17 rate it “Hold,” and five rate it “Sell,” with a consensus price target of US$402.72.

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