Why Adobe Stock Is Down By 9% Today

Adobe Stock Falls On Disappointing Guidance

Shares of Adobe found themselves under significant pressure after the company released its quarterly results.

Adobe reported revenue of $4.11 billion and adjusted earnings of $3.20 per share, mostly in line with analyst estimates.

In its earnings press release, Adobe noted that cash flows from operations reached a record $2.05 billion. The company has also stated that it repurchased 1.6 million shares during the quarter.

In the next quarter, Adobe expects to report revenue of $4.23 billion and adjusted earnings of $3.35 per share. For the full year, Adobe expects revenue of $17.9 billion and adjusted earnings of $13.70 per share.

Before the report was released, analysts expected that Adobe will report earnings of $14.26 per share in 2022, so the company’s guidance was well below analyst estimates.

Assuming Adobe’s earnings guidance is correct, the stock is trading at 42 forward P/E even after the recent pullback which took its shares from the $700 level to the $575 level.

What’s Next For Adobe Stock?

It remains to be seen whether the market is ready to tolerate weaker-than-expected growth when the stock trades at more than 40 forward P/E. While Adobe showed strong results, its shares became too expensive this year, so traders expected stellar results from the company.

While Adobe stock has already pulled back by almost 20% from highs that were reached in November, it is up by 15% year-to-date. The concentration of investors’ capital in a handful of successful tech companies has pushed Adobe’s valuation to high levels, so traders should be closely watching the market sentiment towards richly valued tech companies.

At this point, it looks that the market’s sentiment is shifting, and investors look ready to put more funds into non-tech stocks while taking money out of the biggest names in the S&P 500. If this emerging trend gets stronger, Adobe stock will find itself under more pressure in the upcoming weeks.

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