Adobe Inc. (ADBE)

Conclusion

Adobe Inc. develops creative, digital experience and document software for consumers, creators, marketers and enterprises. At a price of 237.32 USD on 2026-11-09, its market capitalisation is 92.4 billion USD.

The verdict is undervalued. Today's P/E of 12.7 compares with a ten-year median of 47.4, EV/EBITDA of 9.1 with 35.5, and price to free cash flow of 8.7 with 33.6. The discounted cash flow gives 420.63 USD per share at a discount rate of 11.8%. The fair value band runs from 529.68 to 794.53 USD, with a midpoint of 662.11 USD and a margin of safety of 179.0%. The reverse DCF implies growth of 2.3%, against revenue growth of 13.1% a year over five years and free cash flow per share growth of 16.9% a year over the same period.

The strongest numbers are ROIC of 60.0% against a WACC of 11.3%, free cash flow conversion of 145.4% on a trailing basis, and net debt to EBITDA of 0.11. The weakest are a current ratio of 0.77, which is assessed as bad, and three downward estimate revisions for the current year in the last 30 days, against none upward. A slowdown in the growth that the price already assumes would test the case.

Financial health

Financial strength is yellow: interest coverage of 36.4, net debt to EBITDA of 0.11 and an Altman Z-score of 7.20 hold it up, while a current ratio of 0.77 pulls it down. The quick ratio is 0.65 and debt to equity is 0.57. The Altman model was designed for manufacturers, so its zone of safe is only indicative for this software company. Insolvency risk: low, about 0.2% by the estimate of the Ohlson model over one to two years. The company does not report a debt maturity schedule, so refinancing risk cannot be checked from these data.

Earnings quality

Earnings quality is green: free cash flow conversion, a Piotroski score and a falling share count hold it up. Free cash flow conversion is 145.4% on a trailing basis and 140.7% over five years. The accrual ratio is -9.7%, which means cash earnings exceed reported earnings. Stock-based compensation is 8.0% of revenue, and free cash flow after it is 8.52 billion USD. The share count fell at a compound rate of 3.2% over five years, which points to buybacks. The Piotroski score is 7 out of 9. The Beneish M-score is not available. Adobe beat estimates in seven of the last eight quarters, with an average surprise of 2.2%. Current-year estimates were revised down by 0.6% over 90 days, and next-year estimates rose 0.3% with three downward revisions in 30 days.

Profitability

Profitability is green: operating margin, net margin and ROIC all sit above their ten-year medians. The gross margin is 89.1% against a median of 87.2%, the operating margin 35.7% against 32.2%, and the net margin 28.1% against 27.5%. Operating margin stability is 10.4%. ROIC is 60.0% against a WACC of 11.3%, and the given ROIC minus WACC value is 48.8%. Return on equity of 61.9% is inflated by leverage: the DuPont split for fiscal 2025 shows a net margin of 30.0%, an asset turnover of 0.81 and an equity multiplier of 2.54. Most of the return comes from margins and returns on capital, with leverage adding only a modest part.

Growth

Growth is green: revenue compounds at 10.5% over three years, 13.1% over five and 17.4% over ten. Earnings per share compound at 19.6% over three years, 9.7% over five and 30.1% over ten. Revenue grew in all ten of the last ten comparable years. The estimate for next year's earnings growth is 12.1%. Five-year growth is the figure to weigh against the reverse DCF, because it is the rate the price must be compared with. Growth has slowed from the ten-year rate, and the five-year earnings rate is the lowest of the three periods.

Valuation

Valuation is green: every multiple trades far below its ten-year median. P/E is 12.7 against 47.4, a premium of -73.3%; EV/EBITDA is 9.1 against 35.5, -74.3%; price to free cash flow is 8.7 against 33.6, -74.1%; and price to sales is 3.6 against 13.5, -73.7%. Price to book is 7.9 against 13.0, -39.7%. The free cash flow yield is 11.5%. The discounted cash flow value is 420.63 USD per share, based on a discount rate of 11.8% and a terminal value share of 48.1%. The fair value band is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The fair value from historical multiples is 903.58 USD and is a separate figure. Adobe pays no dividend, so the forward yield is 0.

Risks

A current ratio of 0.77 means short-term liabilities exceed liquid assets, so the company relies on steady operating cash flow to meet them. Three downward estimate revisions in 30 days and a next-year EPS estimate growth of 12.1% mean the consensus could be too high, which would lower the earnings base behind the fair value band. The share price has fallen from 669.85 USD at the end of November 2021 to 237.32 USD, which shows how sensitive the multiples are to sentiment. The discounted cash flow value and the historical multiple value are far apart, so the valuation depends on which method is trusted. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue by segment, so it cannot test refinancing or the mix of growth.