Adobe (NASDAQ:ADBE) stock has experienced a pretty rough few years. It almost reached $700 in November 2021, before falling to below $300 in October 2022.
A resurgence seemed to be on the cards when it bounced back and stayed around the $500-$600 mark for most of 2023 and 2024. But it’s been on a steady decline since, and is currently $199.35.
Yesterday, the US software giant released its second-quarter earnings report for 2026. This was impressive and beat expectations. Therefore, its shares should have increased, right?
No, it’s not been so simple. The company’s stock has fallen by 8.9% since.
Therefore, a £10,000 investment in the stock before its earnings announcement is now only worth £9,111… a £889 loss.
Let’s see why this happened and whether this presents an opportunity for investors to explore further.
The financial results
Looking at the financials on their own, the company seems to be thriving. Record revenue of $6.6bn was achieved in the quarter, up 13% from $5.6bn in the same quarter a year ago. This also beat consensus estimates of $6.5bn.
Earnings per share (EPS) is also on the rise, from $3.94 a year ago to $4.25 now.
Furthermore, it’s not just the top and bottom lines that have impressed. Annualised recurring revenue related to AI tripled year on year, exceeding $500m.
This shows the firm could be a huge beneficiary in the AI boom.
However, a couple of things still spooked investors.
The concerns
There were two main aspects of the earnings report that caused a bit of worry among investors.
Firstly, Adobe announced the departure of CFO Dan Burns, who is joining Marvell Technologies. This is the second big departure this year, as long-time CEO Shantanu Narayen decided to step down in the first quarter once a successor is appointed.
Secondly, there are concerns about annualised recurring revenue, which is how much predictable income the company can make over the next year from its subscription business. Currently, it’s $27.1bn, and is forecast to grow by 10.2% over the whole year.
However, this is lower growth than what investors were anticipating. This feeds into worries that the competitive landscape is heating up for the company.
That said, Adobe still released a strong outlook for the rest of the year.
Outlook
While there are risks for the firm, the US software giant’s outlook shows strong and consistent growth.
For the full year, it’s expecting total revenue of $26.5bn-$26.6bn. In 2025, revenue was $23.8bn in comparison. Moreover, EPS is expected to rise from $16.70 last year to $17.90-$18 this year.
These forecasts by management have been adjusted up from their initial outlook and show impressive growth for the company.
However, one thing I’ve spotted that isn’t consistent with a growth company is the company’s valuation.
Currently, Adobe stock is trading at a forward price-to-earnings ratio of 9.3. That’s dirt-cheap for a company that’s experiencing this level of growth.
Because of this, it’s one of the stocks I’m keeping on my watchlist. And, after falling despite impressive earnings, this might be an opportunity for investors to consider exploring further.
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Muhammad Cheema does not hold any positions in the companies mentioned.
