Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Adobe Increased 15.5% in August

By Billy Duberstein – Sep 5, 2020 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This leading software-as-a-service company rode the tech wave higher in August on very little news.

What happened

Shares of Adobe (ADBE 1.18%) rose 15.5% during the month of August, according to data from S&P Global Market Intelligence. The creative cloud software giant, home to Adobe Photoshop, Illustrator, Acrobat, and other digital marketing tools, rose along with the rest of the technology sector during a very strong August for the markets in general and tech in particular.

Adobe itself didn't report earnings, but seemed to move higher when other cloud software stocks showed strong results during the month.

Closeup of a laptop with a photo scroll on it and a pair of hands holding a piece of paper with the same photos on it.

Image source: Getty Images.

So what

Adobe's stock rose along with other leading technology software stocks, as relatively strong results from the sector have made investors bullish on these names to weather the COVID-19 pandemic -- or even thrive because of it. Adobe's stock had pulled back a bit in July after its third quarter guidance came in a tad soft, but regained momentum in August. Strong results from fellow cloud software peer Salesforce (CRM 1.91%) toward the end of the month seemed to propel Adobe higher by association after the period of consolidation.

Now what

Just as Adobe has drifted up with the technology sector at the end of August, it was hit hard last week in the rapid technology sell-off.

Even after the sell-off, Adobe trades at a sky-high 67 times trailing earnings and about 46 times forward earnings, which still makes it very expensive. However, the company's recurring revenue model, operating leverage (in which income increases more than revenue), and the current low interest rate environment have continued to push Adobe's stock higher.

I'm not going to say that Adobe is too expensive to buy, as it's a high-quality large cap tech stock with a substantial moat in its core graphics software business. However, I also wouldn't be surprised if it had a bigger pullback. If it does, Adobe still appears to be a safe stock to buy and hold for the long-term, so risk-off investors may wish to keep it on their watch lists in case a pre-election pullback does in fact happen.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own sharesof the companies mentioned. The Motley Fool owns shares of and recommends Adobe Systems and The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Adobe Inc. Stock Quote
Adobe Inc.
$287.93 (1.18%) $3.37
Salesforce, Inc. Stock Quote
Salesforce, Inc.
$149.82 (1.91%) $2.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.