ADOBE INC. (ADBE): what the price requires

At today's price, ADOBE INC. (ADBE) is priced for -2.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-13 · Source: https://boothcheck.com/report/ADBE

Headline

FieldValue
TickerADBE
CompanyADOBE INC.
Current price$229.78/sh
CompositionSubscription 96% / Product 1% / Services and other 2%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed5.4%
Operating margin today35.9%
Margin compression implied-30.5pp
Implied growth-2.3%
Multiple paid10x operating income

The operating-margin requirement is derived from the framework's value band at year 11, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.4% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~4.4pp.

How unusual the bet is: within-range

ReferenceValue
vs own history-1.12σ
cohort percentile (of 177 peers)9
implied end-window share0%

Valuation X-Ray

The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.18x5expensive
Earnings1.05x5expensive
Relative0.48x5justifies
Growth0.61x3justifies

Families that justify the price: Asset, Earnings, Relative, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.6%); the inversion above states its own rate.

Per-Model Detail (n=18)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$718.160.32xyesFCF base $10.9B, growth 11% (input: historical growth), terminal g 4.0%, WACC 8.6%, 6yr projection
DCF Exit MultipleGrowth$374.490.61xyesExit EV/EBITDA: 8.1x / 10.1x / 12.1x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$479.020.48xyesP/E 26.12x (blended: sector 35x + trailing (TTM) 13x), scenarios: 21.6x / 26.1x / 30.7x (bear / base = sector held flat / bull), EV/EBITDA 19.06x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$194.161.18xyesBV/sh $28.62, ROE (TTM) 62.8%, ke 9.3%
Two-Stage Excess ReturnAsset$704.040.33xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$209.421.10xyesRev $25.2B, growth 11% (input: historical growth; tapered), Terminal P/S: 3.0x / 3.7x / 4.3x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$212.041.08xyesEPS $17.47, growth 12% (input: historical EPS growth), PEG=1.05 (Fair)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$153.801.49xyesNormalized EBIT (5y avg op income, one-time charges added back) $7.16B × (1−24%) / WACC 8.6% → EPV (no growth)
Residual IncomeAsset$319.780.72xyesBV $28.62 + 5yr PV of (ROE (TTM) 62.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$106.062.17xyes√(22.5 × EPS $17.47 × BVPS $28.62) — Graham's conservative floor
EV/EBITDA RelativeRelative$571.830.40xyesEBITDA $9.26B × sector EV/EBITDA 25.0x
FCF YieldEarnings$272.540.84xyesFCF $10280.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$218.041.05xyesSBC-adj FCF $8.25B (FCF $10.28B − SBC $2.03B) capitalized at Kₑ
Ben Graham FormulaEarnings$479.870.48xyesEPS $17.47 × (8.5 + 2×12.1%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$43.745.25xyesBV $28.62 × (ROIC 13.2% / WACC 8.6%)
P/Sales SectorRelative$500.830.46xyesRevenue $25.20B × sector P/S 8.0x
PEG Fair ValueRelative$318.060.72xyesEPS $17.47 × (PEG 1.5 × growth 12.1% (input: historical EPS growth)) → PE 18.2x
Earnings YieldEarnings$188.861.22xyesEPS $17.47 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$1.0b
Net debt / NOPAT (after-tax)0.15x
Net debt / operating income (pre-tax)0.11x
Interest coverage34.0x
Share count CAGR (buyback)-4.0%
Burning cashno

Bullet Takeaways

Bull Case

The market has priced Adobe as a company whose best days are behind it, and the fundamentals do not yet agree. The narrative says AI commoditizes creative software and Adobe gets disrupted; the income statement says a business growing revenue at a double-digit clip, earning a return on equity above 60%, and converting roughly $10.3 billion of that into free cash flow. The gap between the disruption story and the cash the business throws off is the bull case, and the cleanest evidence that the story is wrong is Adobe's own AI traction: management reports AI-first annual recurring revenue more than tripling to over $500 million, which is the company selling AI, not being eaten by it.

The structural strength is the subscription base and where AI fits into it. Adobe's revenue is about 96% recurring, and its filing frames the strategy as "delivering value through AI-powered and highly differentiated" products across Digital Media and Digital Experience. The important nuance is that Adobe does not bet on one model winning; it offers customers "flexibility to use the" generative model that fits each task, which positions Adobe as the workflow layer on top of whichever AI matters, rather than as a single-model gamble. For professional creative and document work, the value is not the raw model, it is the trusted, integrated, commercially safe pipeline, and that is exactly what Firefly, GenStudio, and Acrobat AI Assistant extend.

The financial model compounds for shareholders almost mechanically. Adobe carries effectively no net leverage, net debt is about $1.0 billion against $9.1 billion of operating income, barely a tenth of a year's profit, with interest covered nearly thirty-five times. It pays no dividend and instead retires stock aggressively: the share count has fallen about 4% a year, and a new $25 billion buyback authorization runs through 2030. A business with a 60%-plus return on equity that buys back its own shares while trading at a single-digit multiple of operating income is compounding per-share value from two directions at once. The bull case is that the AI panic has handed buyers a dominant, cash-rich software franchise at a price the value methods say is too low.

Bear Case

The capital-allocation question is where the bear should start, because it doubles as a verdict on growth. Adobe authorized a $25 billion buyback running through 2030, and it pays no dividend, so essentially all of its capital return runs through repurchases. A buyback this large is shareholder-friendly when the stock is cheap, but it is also what a maturing software company does when it cannot find enough high-return reinvestment to absorb its cash. The buyback offsets the dilution from heavy stock-based compensation, roughly $2 billion a year, so a meaningful slice of the repurchase is not shrinking the share count so much as preventing it from growing. The question the buyback quietly answers is whether management sees better uses for the cash than buying its own shares, and the answer, for now, is no.

The competitive risk is real and the company says so. Adobe's filing names the forces working against it directly: "limited barriers to entry, short product life cycles, customer price sensitivity, global economic conditions and the frequent entry of new sol"utions. Generative AI is precisely the technology that lowers those barriers, a startup with a good model and a thin interface can target a slice of what used to require Adobe's full suite, and free or near-free AI image and document tools pressure the willingness to pay for the high end. The same filing flags that Adobe "may be unsuccessful at innovating in response to rapid technological or industry changes," which is the disclosed version of the entire bear thesis: the moat is the integrated workflow, and AI is the thing most capable of routing around it.

The valuation tempers the bear rather than fueling it, and that should be said plainly. On the company's economics the static methods do not call Adobe expensive; the price is supported across asset, earnings-power, peer-multiple, and growth lenses, and inverted on operating income it looks undemanding. So the bear is not an overvaluation argument. It is that the market may be right to discount a high-quality franchise because the source of the quality, paid creative and document software, is the category AI is most likely to compress, and the buyback-heavy capital return is a tell that the reinvestment runway is narrowing even as the cash keeps coming.

Valuation

The striking thing about Adobe at $195.13 (as of June 27, 2026) is how little the price assumes. Inverted on operating income, it pays only about 9 times company-wide operating profit, a multiple low enough to sit below what even a steady 5%-a-year decline in operating income would warrant, and in the lower half of the software peer range. For a business compounding revenue in the double digits with a 60%-plus return on equity, the price is braced for stagnation, which is a conservative posture for the market to take toward a franchise of this quality.

Unusually for a name carrying this much narrative anxiety, the families of methods broadly agree the stock is supported. The earnings-power method, capitalizing normalized operating income, lands near the price; the peer-multiple and cash-flow lenses, working off roughly $10.3 billion of free cash flow, point higher; and the asset and growth methods support it as well. So this is not the pattern where only an aggressive growth assumption reaches a rich price. The reason the methods can say cheap while the stock has fallen is the AI-disruption fear, which is a judgment about the durability of the cash flows rather than their current level.

Solvency is essentially a non-issue and reinforces the read. Net debt of about $1.0 billion is roughly a tenth of a year's operating income, interest is covered nearly thirty-five times, and the company is not burning cash. The share count keeps falling on the buyback, which adds a few points a year to per-share results on top of the operating growth. There is no balance-sheet risk to bound against, so the entire debate sits on one question the methods cannot settle: whether generative AI erodes the pricing power behind the subscription base faster than Adobe can sell AI of its own. The price already discounts that risk; the value methods say it may discount it too far.

Catalysts

The most recent print kept the debate alive rather than settling it. Adobe reported second-quarter fiscal 2026 revenue of $6.62 billion and non-GAAP EPS of $5.96 on June 11, 2026, after a first quarter that beat on both lines and prompted a guidance raise. For the full year the company guides to revenue of $26.50 billion to $26.60 billion and GAAP EPS of $17.90 to $18.00.

The AI commercialization figures are the catalysts that matter most. Management says AI-first annual recurring revenue has more than tripled to over $500 million, well ahead of an earlier roughly $250 million Firefly expectation, on the strength of Firefly, GenStudio, and Acrobat AI Assistant. That ARR trajectory is the direct test of whether AI is a revenue engine or a threat, so each quarter's AI-first ARR disclosure is the single number that moves the thesis.

The capital-return catalyst is the $25 billion buyback authorized through April 2030, aimed at returning cash and offsetting dilution as Adobe leans into AI-first products. Sentiment is cautious despite the cash generation: the consensus rating has drifted to Hold, with a roughly even split between Buy and Hold and a handful of Sell ratings, and a mean target above the current price. That mix, a target above the price but a Hold consensus, captures the standoff precisely: analysts see value in the cash flows but are unwilling to call the AI question before the ARR data settles it.

Peer Cohorts (Per Segment, With Filing Citations)

Digital Media (reported)

Digital Experience (reported)

Publishing and Advertising (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Adobe Q2 FY2026 results, June 11, 2026 · company FY2026 guidance, 2026 · company commentary, FY2026 · company announcement, 2026 · analyst consensus, June 2026

View the full interactive ADBE report on boothcheck