Adobe (ADBE) – $506
It has strong defensible franchises, great branding and leadership. Very profitable in all its segments with operating margins in excess of 30%.
The threat of AI replacing some of the video editing and other products is still in its infancy and Adobe is also working on its own AI initiatives; they’ve just been slow to roll it out.
Revenue growth has slowed to 10-12% for the next three years, and management did disappoint for the next quarter’s guidance. However, Adobe is also a good earnings story with 13-14% earnings growth.
The only problem is the valuation, and the market perception that this is a mature company with $20Bn in revenue. At 28x earnings and 10.5x sales there’s not much left for appreciation with that slowing growth.
I would prefer to buy on declines at around $470. At $506 I would expect a return of about 12% or so a year.