ADBE

We rate ADOBE INC. (ADBE) as a Hold with a composite score of 62.0/100 at a current price of $254.80. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (89th percentile) and quality (89th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (34th percentile) and momentum (36th percentile) tempers our overall conviction. We assign a Wide Moat rating (76/100), Medium uncertainty, and Exemplary capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

ADOBE INC. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 62.0/100 places it at rank #506 in our full 7,333-stock universe. With a $134.0B market capitalization, ADOBE INC. operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 13%, though momentum at the 36th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 89% (+29.8pp vs sector) narrow to operating margins of 37% (+33.2pp vs sector) and net margins of 30.3%, yielding a gross-to-net conversion rate of 34%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $254.80, ADOBE INC. appears undervalued relative to its fundamentals. Our value factor score of 89/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 15.3x (a 36% discount to the sector median of 23.7x), EV/EBITDA of 12.9x (near the sector median), P/B of 9.1x, P/S of 4.6x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to ADOBE INC.. The stock presents a balanced risk profile: risk factors are within normal ranges. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

We identify no major risk factors at this time. The company's stability factor sits at the 78th percentile with quality at the 89th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 89% provide a buffer against cost pressures; above-average stability (78th percentile) suggests predictable business dynamics; large-cap scale ($134.0B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate ADOBE INC.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 59.9%, best-in-class net margins of 30.3%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — ADOBE INC. meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 23.6% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, ADOBE INC. receives a Hold rating with a composite score of 62.0/100 (rank #506 of 7,333). Our quantitative framework assigns a Wide Moat (76/100, trend: stable), Medium uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 65/100.

Our analysis supports a neutral stance on ADOBE INC.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.