You'd have to look pretty far afield to find someone who hasn't heard of Adobe (NASDAQ:ADBE). Its suite of software tools are used by creative professionals everywhere, and the company has an impressive track record of revenue growth.

Adobe is also one of the original pioneers of software-as-a-service (SaaS), having abandoned cellophane-wrapped physical software disks in favor of monthly subscriptions back in 2012.

However, with the uncertainty caused by the pandemic and the stock just off all-time highs, is Adobe stock a buy? Or should investors look elsewhere?

Hands typing on a laptop with digital icons appearing above.

Image source: Getty Images.

An impressive track record of innovation

Adobe has an impressive track record of generating market-beating returns for investors. Over the past five years, the stock has gained more than 430%, but that's just the tip of the iceberg. Investors who have held the stock for the past decade have been rewarded with gains of 1,480%.

The company has expanded beyond its creative software roots and now includes the Adobe Document Cloud. This suite of digital tools is focused on document productivity, helping customers scan, edit, share, collaborate, and sign digital documents. All of these are considered part of the broader digital transformation that got a boost from the shift to remote work caused by the pandemic.

The company's Creative Cloud suite of products has continued to evolve over the years, offering a wide assortment of SaaS tools that help creative professionals create videos, advertising, video games, and more. Their best-known digital toolboxes include Photoshop and Illustrator. These products still provide the backbone of Adobe's success. The company's mission statement tells the story: "Changing the world through digital experiences."

Finally, there's Adobe's Experience Cloud, which has expanded in recent years and provides enterprise businesses with a host of tools to help them succeed. This has pushed the company further into compelling growth areas, including marketing, e-commerce, and analytics.

Impressive quarterly results

In the second quarter, Adobe's revenue grew to a record $3.13 billion, up 14% year over year, while subscription revenue grew to nearly 92% of the total. This is a deceleration from the 24% growth it generated in 2019, but still impressive considering the economic upheaval resulting from the pandemic. At the same time, earnings per share of $2.27 grew a remarkable 76%. 

Adobe's record revenue during the quarter wasn't a fluke, either. The company has produced record revenue in every quarter going back more than five years. 

The company's remaining performance obligation -- which consists of future revenue that's under contract but hasn't yet been recognized -- edged higher to $9.92 billion, providing Adobe with keen insight into its future business.

A long-haired person with glasses looks up at many question marks.

Image source: Getty Images.

Other important considerations

Given the ongoing economic uncertainty, it's worth a quick look at Adobe's balance sheet, which has $4.35 billion in cash and short-term investments and $4.11 billion debt. Adobe's debt is spaced out over the coming decade, and the next installment of $500 million isn't due until Feb. 2023. This gives the company plenty of financial flexibility and resources to weather the ongoing financial storm.

Valuation

Due in part to its stratospheric rise over the past decade, Adobe stock has never been "cheap." The company sports a price-to-earnings (P/E) ratio of 58, with an only slightly more reasonable forward valuation of 46. To give that some context, the P/E of the S&P 500 sits at about 29. 

The shares don't look cheap on a price-to-sales basis, either. Its forward valuation has grown from mid-single digits in late March to more than 17 now -- when a ratio of between 1 and 2 is considered good -- so investors clearly expect good things from Adobe going forward.

To put that into perspective, analysts are expecting sales growth of 11% in the current quarter, 14% for the current year, and 15% next year -- though Adobe has a habit of exceeding expectations. 

The bottom line

Is Adobe stock a buy? I'd argue the answer is an unqualified yes. Even at a rather pricey valuation, investors have been willing to pay up for quality. The company's legacy business is still growing at an impressive rate, while its more recent forays into enterprise, e-commerce, and marketing have long runways ahead.

With a host of ongoing opportunities and a long track record of success, Adobe should be near the top of any investor's buy list.