Should you buy the dip in this software giant?

Shares of famed software company Adobe (ADBE) are trading well below their 52-week high, despite analysts reporting impressive second-quarter results and remarkable revenue and growth estimates. benefits. In addition, the company is expected to suffer from macroeconomic and geopolitical headwinds. So, let's find out if it's wise to buy this falling stock….

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Diversified software company Adobe Inc. (ADBE) operates through three segments: digital media; Digital Experience; and publishing and advertising. The company serves professionals, marketers, content creators, app developers, consumers, businesses, advertisers, merchants, web analysts and data scientists.

ADBE reported strong financial results in the second quarter. The company achieved record revenue in the quarter, driven by strong demand on Creative Cloud, Document Cloud and Experience Cloud. It recorded over $2 billion in operating cash flow, demonstrating its growing revenue streams and financial discipline.

“Our operating model continues to fuel consistent growth, enabling the company to invest in cutting-edge cloud solutions and emerging innovations that are gaining market traction,” said Dan Durn, vice president Executive and Chief Financial Officer of ADBE.

In June, ADBE unveiled innovations for its customer data platform (CDP), Adobe Real-Time CDP, to help global brands transition from third-party cookies to first-party data. To accelerate the first-party data strategy, Adobe introduced enriched customer profiles with commerce, AI-based targeting, new privacy tools, and segment matching across all channels.

The same month, ADBE announced significant updates to Adobe Substance 3D, a suite of tools and services supporting 3D content creation. Updates include a 3D Materials SDK for developers, powerful new plug-ins, and native support for Apple M-series chips for Painter, Designer, and Sampler. Substance 3D apps show strong demand with over 100% year-over-year growth.

Despite strong financials and bright growth prospects, ADBE is expected to face several macroeconomic and geopolitical headwinds in the coming months, including the impact of the ongoing war between Russia and Ukraine and the decision company to cease all new sales to Russia and Belarus. , increased effective tax rates and an additional $175 million foreign exchange impact on third and fourth quarter revenue.

ADBE shares are down 22.2% year-to-date and 30% over the past year to close last trading session at $439.03. The stock is currently trading 37.2% below its 52-week high of $699.54, which it reached on November 22, 2021.

Here's what could influence ADBE's performance in the coming months:

Strong finances

ADBE's revenue increased 14.4% year-on-year to $4.39 billion, and gross profit increased 13.5% year-on-year to $3.85 billion in the second quarter of fiscal 2022 ended June 3, 2022. revenue was $1.97 billion, up 12% year-over-year.

In addition, the company's non-GAAP net income and net earnings per share were $1.59 billion and $3.35, recording increases of 8.9% and 10%, respectively. 6% compared to the prior year period.

Favorable analyst estimates

Analysts expect ADBE's revenue for the third quarter of fiscal 2022 (ending August 2022) to be $4.44 billion, an increase of 12.9 % over the same period in 2021. The consensus EPS estimate of $3.35 for the current quarter indicates a 7.6% year-over-year increase. The company has exceeded consensus estimates for revenue and EPS in each of the past four quarters.

In addition, ADBE's revenue and EPS for fiscal 2022 (ending November 2022) are expected to increase 12% and 8.5% year-over-year, respectively. Additionally, analysts expect the company's revenue and EPS for next year to grow 14% and 17.6% year-over-year, respectively.

Stretched rating

In non-GAAP forward PER terms, ADBE is currently trading at 32.42x, 67.8% higher than the industry average of 19.32x. The stock's EV/Forward multiple of 11.58 is 279.4% higher than the industry average of 3.05. Additionally, its forward EV/EBITDA and price/sales ratios of 23.31 and 11.62 compared to industry averages of 13.22 and 3.00, respectively.

Additionally, in terms of futures price/cash flow, ADBE is currently trading at 26.64x, 38.7% higher than the industry average of 19.21x.

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