Breaking News
Investing Pro 0
💎 Access the Market Tools Trusted by Thousands of Investors Get Started

3 Adobe Stock Trades To Take Advantage Of Recent Weakness

By (Tezcan Gecgil/ )Stock MarketsMar 28, 2022 08:03AM ET
3 Adobe Stock Trades To Take Advantage Of Recent Weakness
By (Tezcan Gecgil/ )   |  Mar 28, 2022 08:03AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
  • Software giant Adobe shares have declined close to 24% since January
  • Q2 outlook was weaker than estimates, creating headwinds for stock
  • Long-term investors could consider buying at current levels

Shareholders in the digital media and marketing software group Adobe (NASDAQ:ADBE) have seen the value of their investment slump 23.9% year-to-date and about 8% over the past 52 weeks. Meanwhile, the Dow Jones Software Index has fallen just 13.2% so far this year but has returned 16.6% in the past 12 months.

ADBE Weekly
ADBE Weekly

On Nov. 22, 2021, ADBE shares went over $699, hitting a record high. However, after the release of Q1 FY22 results, the stock price plunged to its 52-week low of $407.94.

Adobe is well-known for its range of creative and digital marketing software offerings and recent metrics show that Adobe is among the top 10 software names globally. In terms of graphics software, the market share of Adobe Photoshop is over 46%. In the same segment, next come Adobe InDesign (30.17%) and Adobe Illustrator (12.62%).

How Recent Metrics Came In

The software company released Q1 figures on Mar. 22. It reported a 9% year-on-year growth in revenue to $4.26 billion. Adobe classifies revenue in two main segments: digital media which was $3.11 billion and digital experience which was $1.06 billion.

Analysts noted that subscription-based revenue was $3.96 billion, or about 93% of total revenue. Wall Street loves subscription-based businesses as it implies relatively reliable cash flow quarter-after-quarter.

Adobe earned an adjusted $3.37 a share. Meanwhile, it repurchased about 3.8 million shares in Q1.

On the results, Shantanu Narayen, cited:

“Adobe achieved record Q1 revenue as Creative Cloud, Document Cloud and Experience Cloud continue to be pivotal in driving the digital economy.”

But, management warned that the war in Ukraine would dent Q2 metrics as it halted sales in Russia and Belarus and its sales in Ukraine would also be affected.

Adobe now expects Q2 sales of $4.34 billion and adjusted EPS of $3.30, both of which are lower than analysts had been estimating.

Ahead of the release, Adobe was trading at around $465. But on Mar. 25, it closed at $431.62 which means the shares lost around 7.5% of their value since the earnings announcement.

What To Expect From Adobe Stock

Among 30 analysts polled via, ADBE stock has an "outperform" rating.

ADBE Consensus Estimates
ADBE Consensus Estimates


Wall Street also has a 12-month median price target of $567.04 which is an increase of more than 31% from current levels. The 12-month price range currently stands between $455 and $650.

Similarly, according to a number of valuation models, including P/E or P/S multiples or terminal values, the average fair value for Adobe stock on InvestingPro stands at $571.90.

In other words, fundamental valuation suggests shares could increase about 32%.

We can also look at Adobe’s financial health as determined by ranking more than 100 factors against peers in the information technology sector.

For instance, in terms of growth and profit, it scores 4 out of 5. Its overall score of 3 points is a good performance ranking.

At present, ADBE’s P/E, P/B, and P/S ratios are 42.2x, 14.8x and 12.6x. Comparable metrics for peers stand at 26.6x, 16.1x, and 14.1x.

Our expectation is for Adobe stock to build a base within the wide range of $400 and $450 in the coming weeks. Afterwards, shares could potentially start a new leg up.

Adding ADBE Stock To Portfolios

Adobe bulls, who are not concerned about short-term volatility, could consider investing now. Their target price would be $567.04, analysts’ forecast.

Alternatively, investors could consider buying an exchange-traded fund (ETF) that has ADBE stock as a holding. Examples include:

  • Invesco NASDAQ Internet ETF (NASDAQ:PNQI)
  • iShares Expanded Tech-Software Sector ETF (NYSE:IGV)
  • Nuveen Winslow Large-Cap Growth ESG ETF (NYSE:NWLG)
  • SmartETFs Advertising & Marketing Technology ETF (NYSE:MRAD)
  • First Trust Expanded Technology ETF (NYSE:XPND)

Finally, investors who expect Adobe stock to bounce back in the weeks ahead could consider setting up a bull call spread.

Most option strategies are not suitable for all retail investors. Therefore, the following discussion of ADBE stock is offered for educational purposes and not as an actual strategy to be followed by the average retail investor.

Bull Call Spread On Adobe Stock

Price: $431.62

In a bull call spread, a trader has a long call with a lower strike price and a short call with a higher strike price. Both legs of the trade have the same underlying stock (i.e., Adobe) and the same expiration date.

The trader wants ADBE stock to increase in price. In a bull call spread, both the potential profit and the potential loss levels are limited. The trade is established for a net cost (or net debit), which represents the maximum loss.

Today’s bull call spread trade involves buying the June 17 expiry 440 strike call for $26.10 and selling the 450 strike call for $21.50.

Buying this call spread costs the investor around $4.60, or $460 per contract, which is also the maximum risk for this trade.

We should note that the trader could easily lose this amount if the position is held to expiry and both legs expire worthless, i.e., if the ADBE stock price at expiration is below the strike price of the long call (or $440 in our example).

To calculate the maximum potential gain, we can subtract the premium paid from the spread between the two strikes, and multiply the result by 100. In other words: ($10 – $4.60) x 100 = $540.

The trader will realize this maximum profit if the Adobe stock price is at or above the strike price of the short call (higher strike) at expiration (or $450 in our example).

Bottom Line

Innovative products, as well as strong profit growth, have meant that, over the last decade, Adobe shares have outperformed. Yet, recently, the stock has come under significant pressure.

However, the share price slide has improved the margin of safety for buy-and-hold investors who could consider investing soon. Alternatively, experienced traders could also set up an options trade to benefit from a potential run-up in the price of Adobe stock.

3 Adobe Stock Trades To Take Advantage Of Recent Weakness

Related Articles

Paul Rejczak
S&P 500: Will the Selloff Continue? By Paul Rejczak - Sep 28, 2023 1

S&P 500 bounced from a new low yesterday, but was it a bottom? The S&P 500 index gained 0.02% on Wednesday, as it went sideways following an intraday rebound from a new medium-term...

3 Adobe Stock Trades To Take Advantage Of Recent Weakness

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Jacky Lam
Jacky Lam Mar 28, 2022 8:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
thanks for sharing your ideas
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email