Another A stock for June 6th
Today’s recommended stock is Adobe ( $Adobe(ADBE)$), this name will be familiar to many users in the creative industry, well known for it’s Photoshop, Premier Pro, Illustrator, InDesign, and PDF Reader software. Like many stocks in the technology sector, Adobe has seen it’s share price dip down 23% year-to-date, but in the past month it has been inching upwards by 14% from it’s lowest on May 9, this stock has been making higher highs and higher lows since it dipped below $380.
When Adobe reported its Q1 FY 2022 on March 4, 2022, it achieve record Q1 revenue as Creative Cloud, Document Cloud and Experience Cloud continue to be pivotal in driving the digital economy, as mentioned by chairman and CEO of Adobe, Shantanu Narayen. Some highlights from it’s Q1 FY 2022 include record revenue of $4.26 billion in its first quarter of FY 2022, representing 9% YOY growth, while it’s Digital Media segment revenue was $3.11 billion (9% YOY growth), Creative revenue grew to $2.55 billion (7% YOY growth), Document Cloud revenue grew to $562 million (17% YOY growth). Also it’s Digital Experience segment revenue was $1.06 billion, representing 13% YOY growth, with Digital Experience subscription revenue at $932 million (15% YOY growth). Cash flows from operations for the quarter was $1.77 billion.
So, with all the impressive numbers, why did the share price crash 10% the following morning on March 5? That’s because management issued a disappointing guidance for Q2 due to the current macroeconomic and geopolitical conditions. Adobe announced a halt to all new sales of Adobe products and service in Russia and Belarus, and is expecting a revenue impact of $75 million for fiscal year 2022. Looking beyond the current conditions, there is still high demand for Adobe’s digital media products and service and document management systems and Adobe’s guidance points to double-digit growth in every segment and 13% year-on-year growth to it’s top line.
With the expected slight dip in revenue already priced in, the current price looks attractive to add to one’s portfolio, and rated a 5-star undervalued with fair value of $615 by Morningstar. Adobe will report it’s Q2 earnings on June 16 next week, and there are certain risks when starting a new position on upcoming earnings, so investors need to weigh it’s risk vs reward. However, if your planned position is for the long term, investors don’t really need to worry as Adobe is still an industry class leader with a wide economic moat.
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Is a Moat business but not large moat.