Key insights
- Adobe (ADBE) is trading at a low PE ratio with significant revenue growth and free cash flow, despite concerns about AI's impact. The author suggests the stock's current valuation may present a compelling risk/reward opportunity, potentially leading to significant upside if AI threats are overblown. This could signal a potential shift in market sentiment for undervalued tech stocks if the narrative changes.
Before I get attacked as "Bag Holder", I'll preface this by saying I do not own a single share of ADBE, but I'm seriously considering after this most recent earnings and subsequent drop.
Bears will be quick to point out the threat of AI as making this company obsolete, and maybe they're right? But the numbers currently do not reflect that. The stock is flirting with $200/share and has 13% revenue growth, a 12 PE, $10B/year in FCF, and is buying back boatloads of shares. Narratives talk, but numbers scream.
At what point does something become so cheap that it's worth at least a small allocation of a portfolio? Seriously thinking of buying in at these levels to make it just 1% of my portfolio. If it goes lower from here, I'd be willing to DCA into it up to 3% of my portfolio. Not enough to get burned if it goes south and the Bears are right, but if they are wrong, this thing could easily 3-5x from these levels in a short period of time and it wouldn't surprise me one bit.
What do you think? Is the Risk/Reward right on this company?