Adobe Stock's Dip in Value Today Explained

Adobe Stock's Dip in Value Today Explained

Jumping into the stock market thrills and spills:

So here's the big question: What's a smart investor to do when a heavily-watched stock crashes despite announcing stellar earnings? We're talking about Adobe (ADBE), the beloved PDF king, that took a nosedive (-11.62%) today.

Adobe smashed expectations by reporting $5.08 EPS and over $5.7 billion in revenue, yet analysts—zooming in on the powers that be at The Fly and S&P Global Market Intelligence —think otherwise. A gaggle of analysts predictably slammed the brakes on their price targets, sending Adobe spiraling down 11.1% by 9:45 a.m. ET.

Let's delve into Adobe's Q1 earnings:

Raking in a cool $5.71 billion for the first quarter of FY 2025 (ending Feb. 28), Adobe posted a 10% year-over-year growth. However, the $5.08 EPS was non-GAAP, with GAAP earnings clocking $4.14. Despite the GAAP bump, Adobe's earnings more than tripled compared to Q1 2024. Better yet, Adobe reported an impressive $2.5 billion in free cash flow, double last year's figure and 36% higher than net income. It seems Adobe's rolling with the punches and coming out on top.

But why on earth is everyone from Bank of America to TD Cowen giving Adobe the cold shoulder and slashing their price targets? Simple: guidance.

In a nutshell, Adobe's not anticipating a boom in Q2 2025 or for the entire year. Instead, they're foreseeing a revenue and earnings slip-up. Management predicts FY 2025 earnings to fall between $20.20 and $20.50 per share (non-GAAP), with GAAP earnings potentially dipping as low as $15.80. At that price, Adobe currently stands at a 25x multiple of current year earnings.

But here's the twist: $15.80 per share for this year translates to a 28% earnings growth rate, making Adobe a potential steal at a 25 P/E stock. That's right, folks, I'd say it's time to grab Adobe stock before it's too late! It's not a sell — it's a buy!**

1. Financial analysts from The Fly and S&P Global Market Intelligence, despite Adobe's stellar earnings report, lowered their price targets, causing Adobe's stock to crash.
2. Adobe, despite reporting over $5.7 billion in revenue and $5.08 EPS (non-GAAP) for Q1 of FY 2025, saw a 11.62% drop in its stock price due to revised price targets by analysts.
3. Despite the drop in Adobe's stock price, the company reported impressive financials, including a 10% year-over-year growth in revenue, double the free cash flow compared to last year, and a potential 28% earnings growth rate for the current year.
4. The financial analysts from Bank of America and TD Cowen, citing guidance, have slashed Adobe's price targets, prompting some investors to question whether Adobe's stock is undervalued and a potential buy.

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