Software company stocks have had a good run during the past few months. As more people work from home, live more of their lives online, and increasingly be a part of the digital economy, the technology sector has benefitted disproportionately as compared to other sectors.
Adobe’s stock is up 43% since the start of the year. The stock is also up 67% since the March market crash. Meanwhile, the S&P500 is up 3.92% since the start of 2020 and 51% up since hitting a low in March 2020. On a longer-term basis, Adobe’s stock has gone 6X from about 78 to 478.
What makes Adobe one of the top software companies stock is its dominant position and strong product lineup in the creative applications and cloud markets. Its subscription revenue model also results in a stable income stream. In fact, Adobe is one of the pioneers of the famed software-as-a-service (SaaS) model. Adobe also continues to do well in emerging markets. The increasing demand to create videos is also proving to be a tailwind for the company’s creative software segment.
Being one of the top software stocks 2020, Adobe’s valuation isn’t cheap by any means. It currently trades at a lofty P/E ratio of 63.09 (as of 20th August 2020). Being a high growth stock, Adobe does not pay a dividend as it reinvests its earnings into the business. The S&P500’s average P/E ratio is about 29, more than half of Adobe’s P/E ratio.
Recently, Adobe has been in the news for accidentally deleting its users’ photos. Customers have complained that when they updated the Lightroom app (iOS version) on their mobile phones. The photos and presets have been deleted. Adobe’s representative Rikk Flohr has apologized for the incident while the company has stated that the photos might be recoverable if users have stored a backup stored on their iPhones or the iPads.
