With shares of Adobe (NASDAQ:ADBE) trading around $45, is ADBE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Adobe operates as a diversified software company worldwide. It offers a line of software and services used by creative professionals, marketers, knowledge workers, application developers, enterprises, and consumers. Adobe markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its website at www.adobe.com. Software products and platforms are seeing an increased adoption rate worldwide by consumers and businesses who are seeing increased technology exposure. The efficiency and ease offered by Adobe products make it a viable option to many. Look for Adobe to see rising profits their products make their way into homes and businesses around the world.
T = Technicals on the Stock Chart are Strong
Adobe stock been climbing higher over the last year or so. The stock is now trading at a critical price level where a move in either direction can be very decisive for its future. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Adobe is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Adobe options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Adobe Options | 24.45% | 0% | 0% |
What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| July Options | Flat | Average |
| August Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Adobe’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Adobe look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -64.86% | 26.03% | 2.56% | 0.00% |
| Revenue Growth (Y-O-Y) | -3.57% | 0.11% | 6.65% | 9.90% |
| Earnings Reaction | 4.19% | 5.71% | 4.25% | -2.73% |
Adobe has seen improving earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Adobe’s recent earnings announcements.
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P = Excellent Relative Performance Versus Peers and Sector
How has Adobe stock done relative to its peers, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), and sector?
| Adobe | Apple | Microsoft | Oracle | Sector | |
| Year-to-Date Return | 21.47% | -20.39% | 28.87% | 2.31% | 15.39% |
Adobe has been a relative performance leader, year-to-date.
Conclusion
Adobe provides valuable software products and services to a wide range of companies and consumers operating in diversified industries worldwide. The stock has seen a strong run over the last year and is now trading at critical price levels. Over the four quarters, investors have been pleased with Adobe’s improving earnings and revenue figures. Relative to its peers and sector, Adobe has been a year-to-date performance leader. Look for Adobe to continue to OUTPERFORM.
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