Since making the shift to a cloud-based subscription model, Adobe's(ADBE 5.95%) stock has been on a tear. Shares have surged 300% over the past five years, fueled by a 150% rise in revenue and a more-than-sevenfold jump in operating profits.
But with Adobe trading near its all-time highs, is its stock still a good buy today?
A strong competitive position
Adobe helps artists and businesses design beautiful digital experiences. Its Creative Cloud software -- which includes tools such as Photoshop image editing, Premiere Pro video editing, and Premier Rush online video creation and sharing -- is used by millions of website designers, videographers, animators, and social media creators around the world.
Adobe bolstered its product lineup last year with its $1.68 billion acquisition of e-commerce company Magento and $4.75 billion purchase of marketing engagement platform Marketo. Magento provides software to design and operate online stores, process purchases and payments, and manage shipping and returns. Marketo helps marketers deliver more relevant, personalized, and engaging promotions. Together, they help to make Adobe a one-stop shop for design-based businesses.
Moreover, Adobe's subscription-based model reduces the up-front cost of its products and services, thereby making it easier for small businesses and individuals to trial and implement them. This, in turn, is helping to expand the company's total addressable market -- and fuel its growth.
Intriguing growth prospects
Adobe's revenue jumped 25% year over year, to $2.7 billion, in the second quarter. Its non-GAAP (adjusted) earnings per share, meanwhile, climbed 10% to $1.83, besting Wall Street's estimates.
Looking ahead, Adobe expects full-year revenue to increase more than 23% year over year to $11.15 billion. Management is also guiding for adjusted EPS to rise more than 15% to $7.80. Looking even further ahead, analysts forecast that Adobe will grow its earnings at a greater-than-23% annual clip over the next half-decade.
"Adobe's continued momentum is being fueled by the explosion of creativity across the globe and the widespread business transformation agenda to deliver engaging customer experiences," CEO Shantanu Narayen said in the company's Q2 press release. "With an innovative technology platform, exciting product roadmap, and strong ecosystem of partners, we are well positioned for the second half of FY19 and beyond."
A reasonable valuation
Despite trading within 5% of its all-time highs, Adobe's shares can currently be had for less than 30 times analysts' earnings estimates for 2020. While somewhat rich by traditional standards, that's a fair price to pay for a competitively dominant business that's projected to increase its profits by more than 20% annually in the coming years.
As such, I'd argue that Adobe's stock is a solid buy at current prices -- and investors who buy today should be well rewarded in the years ahead.