Adobe (ADBE): fair value

Fair-value band

The normal range for this name runs from $108 (cheap) to $749 (expensive); it is now priced at $257.

That is 0.8σ below this name's own normal premium.

Is Adobe undervalued?

Fair, relative to its own history. Adobe trades at $257, 58% below the fair value this model estimates, but it has habitually traded 30% below fair value, and today's gap is 0.8σ below that norm, within the range it normally trades in, so the verdict is Fair: priced normally for itself, not necessarily fairly valued.

Diligence checklist

6 pass · 3 fail · 2 no data

• PASSCash actually collected from profit, last 12 months: 141%XBRL · Adobe gets $1.41 of real cash for every $1 of reported profit which means profits are real and not just numbers on paper. That's a good sign.
• FAILGap between paper profit and real cash: -12.0%XBRL · Adobe collected more cash than it booked as profit, by 12.0% of everything it owns. That is the conservative direction, but it is far enough past my 5% line to flag: a gap this wide usually means something large and non-cash is running through the earnings, and I want to know what it is before I trust the profit figure.
• PASSDebt compared to one year of cash earnings: 0.04xXBRL · Adobe could pay off everything it owes, net of the cash it holds, with 0.04 of a single year's earnings. My limit for a name I would buy is three years, so debt is not a risk here.
• PASSHow much more it earns on capital than that capital costs: +31.71ppXBRL · Return on capital is far higher than what that capital costs, so every dollar Adobe puts to work turns into much more than a dollar of value. A +32 point gap is wide: reinvesting is genuinely worth doing here, which is what makes growth valuable rather than merely expensive. The gap is wider than it was at the start of the window.
• FAILStock sold by executives and directors on the open market, last 6 months: $50.2MEDGAR (dealbreaker) · Narayen Shantanu sold $49.6M of stock in the last 6 months, outside any pre-planned selling schedule, and $50.2M went out that way in total. My rulebook says more than $5 million of this kind of selling is disqualifying for a "long" position (buying the stock). The full list of open-market sellers: Narayen Shantanu $49.6M, Durn Daniel $0.3M, Forusz Jillian $0.3M. Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either. filing ↗
• FAILHow long the CEO has run this company: succession pendingTEXT · Adobe has a new CEO starting December 1, 2026. Since they just started, there's no history yet to judge how good a leader they'll be at this company. It's not that management looks bad, there's just nothing to grade yet. filing ↗
• PASSProfit margin held up during the last sales slump: 85.4% vs 89.3% baseXBRL · The last time Adobe's revenue fell, its profit margin per unit sold only slipped a little, from about 89.3% to 85.4%. It means Adobe isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 4 quarters from August 2013 to May 2014, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• PASSNormal profit margin across a full business cycle: FCF margin 41.6% vs 41.6% medianXBRL · Adobe's current cash margin (41.6%) sits a little below its long-run average (41.6%). My valuation grows the average, so a soft patch doesn't get written into the value as if it were permanent. Across the window the margin ran between 31.6% in May 2024 and 44.2% in December 2021.
• N/AHow much of the stock trades on an average day: $984MMARKET · Adobe trades about $984M of stock a day. Taking a fifth of that for ten sessions, I could build or exit roughly $1,969M without leaning on the price. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• N/AShare of revenue from its single biggest customer: not establishedTEXT · I fetched and read Adobe's January 15, 2026 10-K but found no sentence about customer concentration. That isn't the same as the filing saying there is none: it may simply be worded in a way my search doesn't catch. Read Item 1 and the concentration-of-risk note yourself before trusting this row. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. Adobe hasn't changed auditors in the last 2 years, so there's no such red flag here.