Adobe stock price analysis, earnings preview: buy or sell?

Adobe stock price will be in the spotlight this week as the technology giant publishes its financial results.

ADBE has jumped in the last six days, reaching its highest swing since February 3.

It has jumped by 15% from its lowest point this year, mirroring the performance of other software stocks like Intuit and ServiceNow.

Adobe earnings to shed light on AI impact 

The ADBE stock price has rebounded in the past few days, moving from the year-to-date low of $245 to the current $283. 

This rebound happened as investors rotated back to software companies, which tumbled earlier this year amid concerns that AI tools like Anthropic and OpenAI would disrupt its business.

The upcoming results will provide more information about how its business is doing as some key parts of its business come at risk of disruption.

Analysts expect the upcoming results to show that its business continued doing moderately well in the last quarter. Its revenue jumped by 9.85% to $6.28 billion, while its earnings rose by 15% to $5.87.

Analysts also expect that the annual revenue will be $26 billion, up by 9.54%, followed by $28 billion in the following year.

The most recent numbers showed that Adobe’s business was doing well, with its revenue rising by 10% to $6.19 billion, while its operating income rose to $2.26 billion.

Most of the revenue came from its digital media segment, which made $5.96 billion. Its digital experience segment made $1.5 billion, while the annual recurring revenue rose to $25 billion.

Adobe has become highly undervalued. Data compiled by Seeking Alpha shows that the forward price-to-earnings (PE) has slumped to 12, much lower than the sector median of 21. The multiple is much lower than the five-year average of 30.

In contrast, Intuit has a forward PE multiple of 20, while ServiceNow has a multiple of 30. Other popular software companies like Atlassian, Microsoft, and Okta have higher multiples.

The same is happening in terms of the popular rule-of-40 metric, which looks at a company's growth and margins. Its profit margin stands at 30% and its revenue growth stands at 10, giving it a multiple of 40%.

Adobe stock price technical analysis 

The weekly chart reveals that the Adobe share price has crashed from $635 in January 2023 to a low of $245. It formed a descending channel and has rebounded from its lower side. This rebound started after hitting the lower side when it formed a morning star pattern.

The stock has moved above the key resistance level at $273, its lowest swing in September 2022. Still, it remains below all moving averages.

It has formed an inverted cup-and-handle pattern, a common bearish continuation sign in technical analysis.

Therefore, the most likely scenario is where the stock rebounds and hits the upper side of the channel at $300. The stock will then retreat because of the inverted cup-and-handle pattern.