Fundamental Fridays: Adobe Systems
March 6, 2009 by Tisa Silver
Filed under Finance
Welcome to Fundamental Fridays! Today, we will examine Adobe Systems (Ticker: ADBE).
According to its Yahoo! profile, Adobe Systems provides “business and mobile software and services worldwide.” The company was founded in 1982 and is headquartered in San Jose, California.
Photo by Engin Erdogan, Courtesy of flickr
I picked Adobe because I have been having serious issues with the company’s Flash and Shockwave players all week long!
In the past 52 weeks, Adobe has moved right along with the S&P 500. ADBE has lost 47.89 percent of its value. The S&P 500 lost 47.67 percent of its value during the same period. Yesterday, ADBE closed at $16.92. Should you roll the dice on Adobe?
Fundamental analysis can include valuation ratios, credit risk and evaluation of a company’s management, competition and prospects for future performance. Let’s take a look at the fundamentals, using valuation ratios, credit and profitability.
Valuation measures:
Price-earnings – Compares the current market value per share to the earnings per share. P/E ratio for ADBE: 10.26, P/E industry average: 3.48. Signal: OVERVALUED
Price-sales – Compares the current market value per share to the revenue per share. P/S ratio for ADBE: 2.39, P/S industry average: 0.58. Signal: OVERVALUED
Price-cash flow – Compares the current market value per share to the cash flow per share. P/CF ratio for ADBE: 7.51, P/CF industry average: 2.21. Signal: OVERVALUED
Credit:
Current ratio - Current assets relative to current liabilities. Current ratio for ADBE: 3.59, current ratio for industry: 2.91
Total Debt to Equity – Total liabilities relative to total shareholder’s equity. TD ratio for ADBE: 7.94%, TD ratio for industry: 14.32%
Profitability Measures:
Return on Assets – Net income relative to total assets. ROA for ADBE: 15.12%, ROA industry average: 3.17%
Return on Equity – Net income relative to total equity. ROE for ADBE: 19.24%, ROE industry average: 6.07%
Profit margin - Net income relative to revenue. PM for ADBE: 24.35%, PM industry average: 3.61%
Earnings (EPS) growth – 5 year growth of earnings per share. EPS growth for ADBE: 23.57%, EPS growth for the industry: 8.47%
Bottom Line: Valuation ratios suggest that ADBE is overvalued. However, ADBE has less debt, higher liquidity, higher profitability, and higher earnings growth relative to its peers.
Based on the ratios used today, TST’s Fundamental Friday Recommendation: BUY
Remember: This is not a recommendation to buy stock, just a test to see what fundamentals suggest. Ratios should not be used as the sole basis of your investment decisions and many figures used come from financial statements.
