Adobe stock price crash supercharges: Is it a bargain or a value trap?

Adobe stock price continued its freefall this week, reaching its lowest level since November 22, turning one of the best-known software companies into a fallen angel. ADBE dropped to a low of $294, down by 53% from its highest point in 2024, with its market capitalization falling from the all-time high of $288 billion to $120 billion.

Adobe stock sell-off is part of the ongoing software crash

The ongoing Adobe stock price crash is part of the sell-off of top software companies as investors worry about disruption by artificial intelligence tools by companies like OpenAI and Anthropic.

For example, the ServiceNow stock dropped to a low of $125, down from the all-time high of $240. It has moved to the lowest level since June 2024.

Similarly, Intuit stock crashed to a low of $523, its lowest level since November 2023 and 35% below its all-time high.

Salesforce stock dropped to $220 from the all-time high of $367, making it the top laggard in the blue-chip Dow Jones Index.

Atlassian stock price moved to a low of $120, much lower than its all-time high of nearly $500. Other software companies like Box, Dropbox, Workday, AppLovin, and Autodesk have all plunged.

Analysts believe that Adobe’s business could be disrupted as AI tools by companies like Anthropic and OpenAI become more advanced. In the future, it will become possible to do most for the design solutions that Adobe offers using AI chatbots.

At the same time, there are concerns about competition in the industry, with many companies and clients opting for its competitors like Figma and Canva.

ADBE has become a bargain

On the positive side, Adobe has become a bargain because of the ongoing crash. Data compiled by Seeking Alpha shows that the company has a forward price-to-earnings ratio of 12, much lower than the sector median of 25 and the five-year average of 30.

Its forward PEG ratio has dropped to 0.5, which is also lower than the sector median of 1.6 and the five-year average of 1.88.

The company has also become a bargain based on the Rule-of-40 approach, which looks at a company's revenue growth and its margins. In Adobe’s case, it has a forward revenue growth metric of 10%, a net income margin of 30%, and an EBITDA margin of 38%. This means that the company has a Rule-of-40 metric of at least 40, which makes it a bargain.

Therefore, Adobe stock price will likely react to the upcoming financial results, which will provide more information on whether its revenue and profitability growth are accelerating. Wall Street analysts expect that its revenue will come in at $6.2 billion, bringing its annual figure to $26 billion. It will then make $28.38 billion this year, while its earnings-per-share will move to $26.38 from the previous $23.46.

The weekly chart shows that the ADBE stock price has been in a strong downward trend in the past few months, moving from a high of $642 in January 2024 to a low of $294 this week.

It crashed below the important support level at $332, its lowest level in April last year, a sign that bears remain in control. It has also crashed below the 50-week and 100-week Exponential Moving Averages (EMA)and the Supertrend indicator.

Top oscillators like the Relative Strength Index (RSI) and the MACD indicators have continued moving downwards.

Therefore, the most likely scenario is where the stock continues falling as sellers target the next key support level at $272, its lowest level in September 2022.

In the future, however, the stock will likely bounce back as investors go bargain hunting, especially what the company demonstrates its growth potential.