Cheap Adobe stock has formed a risky pattern: will it crash after earnings?

Adobe NASDAQ:ADBE stock price remains on edge this week as investors wait for the upcoming quarterly results, which will provide more insights on its business amid the ongoing artificial intelligence disruption. ADBE dropped to $248, down slightly from last month’s high of $274. This article explores what to expect as the company prepares to release its numbers this week.

Adobe stock in focus ahead of its earnings

Adobe, the popular software company, will be in the spotlight in the coming days as it publishes its financial results. These results will be important as they will provide more insights on how it is handling the ongoing disruption in the industry.

The most recent financial report showed that the company’s growth continued in the first quarter of fiscal year 2026. It rose by 12% YoY to $6.40 billion, a record high for the quarter. 

The results also showed that the annualized recurring revenue (ARR) jumped to over $26 billion. It exited the quarter with over $22.2 billion in Remaining Performance Obligations (RPO). 

Wall Street analysts believe that its business continued doing well in the second quarter. The average estimate is that its revenue rose by 9.84% to $6.45 billion. These analysts believe that the annual revenue will grow by 9.78% and 9.05% in the next two financial years. 

Adobe is cheap and repurchasing shares

Most notably, the company has continued to reduce the number of outstanding shares through its share buybacks. It has reduced the number of these shares to 406 million from 476 million in 2021. Its recent results showed that it repurchased 8.1 million shares.

Share repurchases are important as they help companies to boost their earnings-per-share (EPS) over time. In this case, the company will likely continue boosting its repurchases as its free cash flow jumps. For example, it made a free cash flow of $2.96 billion in the first quarter, a figure that will continue growing.

Valuation analysis suggests that the company is extremely cheap, making it an ideal value stock. Data shows that the company has a forward price-to-earnings ratio of 13.76, down from the sector average of 32. This metric is much lower than the five-year average of 37. Also, it has a forward PEG ratio of 0.83, also lower than the sector median of 1.37. 

The company also has a forward EV to EBITDA multiple of 8.16, also lower than the sector median of 14.86. 

Wall Street analysts are relatively bullish on the company. For example, data compiled by MarketBeat shows that the consensus estimate is $337, up by 40% from the current level.

ADBE stock price technical analysis

Adobe stock chart | Source: TradingView

The daily chart shows that the Adobe stock price has come under pressure for a long time. Most recently, it retreated from the year-to-date high of $362 to a low of $225 on April 9. It then started to bounce back, and eventually formed an ascending channel. This channel is a sign that it has formed a bearish flag pattern, a common continuation sign.

Adobe share price has moved below the 50-day and 100-day Exponential Moving Averages. Therefore, the stock will likely have a bearish breakout, potentially to the year-to-date low of $224.