Where Does Adobe’s Busted Valuation Go From Here?

rejoicing in hope, patient in tribulation, continuing steadfastly in prayer;

Romans 12:12

This verse is only a part of a larger focus on instructions in Romans teaching on how to behave as a Christian. To sum up, God’s key commands are to love the Lord with all my heart, mind, and soul, and to love others as myself. My hope is in the truth of Jesus Christ. This hope is what helps me remain patient in tribulation, while continuing to grow in my relationship with God.

Investing principles can benefit from these truths as well. Having a positive perspective is highly important to offset today’s cynicism; patience is a critical attribute to succeed, notably over the long-term; and steadfast conviction is also key to remain disciplined as market volatility ensues.

Adobe, Inc. (ADBE) from the Great Recession to 2019 was a great investment as the company executed its subscription revenue transformation from a product-based business model. Since 2020, the tables have turned as the stock price is down 24 percent.

Since 2021, ADBE’s annualized revenue growth has been in decline. ADBE’s operating cash flow multiple has similarly contracted to levels not seen since the Great Recession. Most analysts are not expecting ADBE to return to 20 percent revenue growth anytime soon. I tend to agree. Retail investors should be prepared for ADBE’s multiple contraction to remain in place with upside potential being towards 20 or so times operating cash flow per share. ADBE is no longer an aggressive growth investment option but still offers retail investors growth with annualized potential over the mid-term in the low-teens.