Will Adobe Make New All-Time Highs?

 
on March 26 2013 10:17 AM

With shares of Adobe (NASDAQ:ADBE) trading around $42, 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:

C = Catalyst 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. With the increased adoption of its products, the company has the resources to engage with users across the globe.

T = Technicals on the Stock Chart are Strong

Adobe is one of the few technology names that is trading near its highs. The stock has displayed a beautiful uptrend that extends back to 2002. Currently, it is setting up to take on previous resistance near $48 per share. Key simple moving averages can provide insight into the trend and strength of the trend. What are the key moving averages? The 50-day, 100-day, and 200-day simple moving averages. Adobe is trading above its rising key averages, which signals a strong uptrend.

Taking a look at the implied volatility and implied volatility skew levels of Adobe options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Adobe options is at 22.08 percent today, which coincides with a 16th percentile over the last 30 trading days and 20th percentile over the last 90 trading days. What does this mean? It means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

The implied volatility skew of April and May put and call options is at about average. So as of today, there is an average demand from call and put buyers or average supply of call and put sellers, all neutral over the next two months. Investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Adobe should be seeing increasing earnings and revenue growth so that the stock price can rise. The last four quarterly earnings growth (Y-O-Y) rates for Adobe have been:-64.86, 25.71, 2.56, and zero percent while the last four revenue growth (Y-O-Y) rates have all been: -3.57, 0.11, 6.65, and 9.9 percent. Adobe has displayed good earnings and revenue growth rates over the last four quarters.

Let’s see how the markets liked these numbers. The last four quarterly earnings announcement reactions help gauge investor sentiment on Adobe’s stock. The last four quarters have seen next trading session returns of 4.19, 5.71, 4.25, and -2.73 percent. The markets have generally been very pleased with Adobe’s earnings announcements.

E = Excellent Relative Performance Versus Peers and Sector

How has Adobe stock done relative to its peers and sector? Year-to-date, the stock is returning 10.85 percent while its competitors, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), and sector are returning -15.5, 2.06, -9.89, and 4.8 percent respectively. Adobe has been the relative performance leader of its sector.

Conclusion

Adobe is on a strong run and shows no signs of slowing. The earnings and revenue growth rates are exciting investors who are in turn bidding up the stock. Relative to its peers and sector, the stock has led by a significant margin. Look for Adobe’s innovation and dominance in its field to continue. Adobe looks poised to OUTPERFORM.

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