Adobe Looks Stretched at All-Time Highs

Stocks to buy

Investors have sought shelter from the novel-coronavirus crisis in tech-centered companies like Adobe (NASDAQ:ADBE). As a result, ADBE stock is trading near its highest price in history. Folks who’ve owned the shares for a while have every reason to celebrate their smart investment.

Ahead of Adobe Earnings, Should Long-Term Investors Buy ADBE Stock?

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Today, however, presents a very different value proposition for ADBE compared to the beginning of 2020. Contrarian investors might start to wonder whether it’s a crowded trade. It’s a tough call because sometimes crowded trades continue to make gains.

Skeptical traders also must face the fact that Adobe’s financials appear to be strong. Plus, analysts are enamored with ADBE stock right now. Therefore, it’s not necessary to take a bearish position against Adobe, but a wary stance might be warranted based on the price action.

A Closer Look at ADBE Stock

Compared to many large-cap stocks, ADBE didn’t sustain much damage from the impact of the coronavirus. Besides, an argument could be made that the stock had gone up too much prior to the pandemic. Specifically, from late October to late February, ADBE stock climbed steadily from $261 to $383.

Something was bound to let the air out of the tires sooner or later. In this case it was the pandemic, which brought ADBE shares down to the $285 level. Soon, however, investors collectively decided that business software was a great sector to be in, as the work-from-home trend took hold.

The next thing you know, everybody and his uncle was buying up tech-sector stocks. Adobe was swept up in the mania and the shares made a run for all-time highs. Recently touching $440, ADBE stock could certainly keep on marching higher. Still, cautious investors should begin to question whether it makes sense to own the shares at such a lofty price point.

It’s Digital Mania

When Adobe released its data for May’s digital sales, it sounded a lot like the winter holiday season. In fact, it sounded even better than that. Digital sales, according to Adobe, amounted to $82.5 billion that month. That represents a stunning year-over-year increase of 77.8%.

Not only that, but it’s higher than the digital sales posted during Black Friday and Cyber Monday. Those two days, which take place in the winter, are typically among the most lucrative shopping days of the year.

Adobe Digital Insights Manager Vivek Pandya brings even more stunning data to the conversation:

“For us, the biggest takeaway is this very robust growth we’ve seen in online spending through the Covid-19 pandemic, which has essentially added $52 billion of additional online spending, above what we had been forecasting… In April and May alone, we’ve surpassed the $140 billion total spent during the holiday season last year.”

Analysts Decidedly Bullish

Investors might view all of this as a reason to buy ADBE stock. A truly contrarian view, however, would see this differently. This pace of growth in digital sales and spending isn’t likely to be sustainable. Businesses are still hurting and many individuals remain unemployed or underemployed.

J. Derrick Wood, an analyst at Cowen, essentially acknowledged this when he observed, “there are still macro pressures at hand.” Even with that concession, however, Wood recently increased his price target on ADBE stock from $365 to $400.

In the same vein, JPMorgan analyst, Sterling Auty, lifted his price objective on ADBE shares from $325 to $430. Jefferies analyst Brent Thill, meanwhile, moved his price target up from $450 to $470.

The analyst community, therefore, is sending you an unmistakably bullish signal. Now, it’s up to you. You can either heed the call of the analysts, or you can examine the price action of the stock and decide for yourself whether ADBE shares are reasonably priced.

The Bottom Line

Regarding ADBE stock, if you choose to buy it now, you’ll have the backing of the analyst community. That being said, you’ll also be owning the shares at a very elevated price point. All in all, value-focused investors can acknowledge the spike in digital sales but still wait for a pullback in the ADBE share price before jumping in.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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