Trim Adobe

On June 15th, I wrote about the plunge in Adobe (ADBE) and addressed the challenges it faces. I called out the stock as quite cheap, suggesting it could do better, which it has. I explained how it was a Magic Formula stock and why I rated it a Buy, and I suggested that they should do something to improve the stock's attractiveness even more. They have not done so, but the stock has rallied so much that I am reducing it from Buy to Hold.

A Look at the Chart

Since the article in June, ADBE has gained about 33%. The stock is still down a lot in 2026:

It set a multi-year low in mid-June and is near the six-month high price set in March. The rally from the low in June has seen two gaps in the price on the daily chart, and those may get filled. Of course, so may the gap above from when it broke down in February. The price, currently above the 150-day moving average for the first time in over a year, is down 22.4% year-to-date.

The breakdown in the price earlier this year was not due to anything but negativity for software stocks in general due to Artificial Intelligence (AI). The large and popular iShares Expanded Tech Software Sector ETF (IGV) has decreased slightly in 2026 now after a rebound, while the State Street SPDR Software & Services ETF (XSW) has rallied. Here is the chart for these three securities over the past three years:

Today, Adobe was down in the pre-market due to a large drop by Intuit (INTU), which reported last night and lowered its guidance. INTU is now down about 4%. While INTU has dropped more than ADBE in 2026, it has outpaced it over the past three years:

The Valuation Is Still Decent

Adobe was trading at a PE of less than 10X two months ago, but, with the rally, it now trades at slightly higher. According to Koyfin, the EPS estimate for FY27 is $27.49, so the PE for FY27 is just 9.8X. This is low absolutely as well as relative to its history. The revenue projected for FY26 is slightly higher now than it was in June, with analysts expecting a 12% increase to $26.53 billion. I pointed out that the book value was just $11.4 billion, with a negative tangible book value due to intangibles and goodwill of $13.3 billion.

So, the valuation seems reasonable despite the rally. I pointed out the action today in INTU, and INTU, which does pay a dividend, unlike ADBE, did boost the dividend substantially during this fiscal year. For a Tech stock, this yield is high at 1.6% but nothing to get excited about. INTU trades at a PE of 15X the reduced guidance of $22.88-23.12 (on a non-GAAP basis), so ADBE is cheap to INTU.

Why I Am Downgrading Adobe

I did not expect Adobe to do the "magic trick" that I suggested, as it still has not implemented a dividend, but the stock did go up a lot. While I think that the stock could keep rallying, as it is below the $301 target that I set for year-end, I am reducing my rating from Buy to Hold due to the INTU report. This cut in prices by INTU is due to competition, and ADBE, which reports in a couple of weeks, may reduce its outlook. More importantly, perhaps, investors may lose their confidence again.