Adobe has gotten torched over the last six months - since September 2025, its stock price has dropped 32.4% to $246.27 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Adobe, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Adobe Not Exciting?
Even with the cheaper entry price, we're swiping left on Adobe for now. Here are three reasons why ADBE doesn't excite us and a stock we'd rather own.
1. Weak ARR Points to Soft Demand
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Adobe’s ARR came in at $26.06 billion in Q1, and over the last four quarters, its year-on-year growth averaged 13%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in securing longer-term commitments. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Adobe’s revenue to rise by 8.5%, a slight deceleration versus its 12.3% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. Operating Margin in Limbo
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Analyzing the trend in its profitability, Adobe’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 36.6%.
Final Judgment
Adobe’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 3.8× forward price-to-sales (or $246.27 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Adobe
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