Adobe (ADBE 1.90%) is a software company that many up-and-coming SaaS (software-as-a-service) companies aspire to be like. However, because of increased scrutiny thanks to a significant acquisition, the stock is down 14% since its acquisition announcement.

However, with the sell-off, Adobe's stock is cheaper than ever since switching to an SaaS model nearly a decade ago. Is this pessimism warranted or is it just investor overreaction?

A large acquisition for an expensive price

Alongside its third-quarter (ending Sept. 2) results, Adobe revealed its intent to acquire Figma, a collaborative design tool. What concerned investors wasn't the acquisition but the price Adobe plans to pay: $20 billion. For that chunk of change, Adobe will get a company that produces $400 million in annual recurring revenue and is free-cash-flow positive.

At 50 times sales, the price Adobe paid for Figma reminds many investors of the highly inflated tech stock valuations of 2021 that came crashing down in 2022. At face value, it looks like Adobe overpaid, but after digging deeper, it became clearer why Adobe had to pay a premium.

First, Figma directly competes with Adobe XD -- a program for designing user interfaces on apps, websites, games, and more. When working on a project like that, it's common to collaborate with other designers. However, Adobe's collaboration tools seem like ancient technology compared to Figma's. With Figma, users can simultaneously make edits on a web-based platform, whereas Adobe XD requires multiple applications to collaborate effectively.

By purchasing Figma, Adobe instantly obtains the collaboration technology to improve Adobe XD and all of its other design products. In a business environment that demands these capabilities, Adobe had to move quickly to obtain the technology rather than build it from the ground up.

Second, Figma's customers are rapidly expanding. With a net-dollar retention rate of 150%, customers are spending about $150 this year for every $100 they spent last year. As Figma acquires new customers and expands with old ones, the price will look less expensive each year.

Still, with Adobe paying for the deal with a 50/50 cash-and-stock split, it will have to issue about 30.8 million shares at $325 to pay for the acquisition. Thirty million new shares practically wipes out all of Adobe's share repurchases since 2016, making that program essentially worthless.

That is the worst part of this acquisition. But the business should benefit from Figma's financials, even though Adobe is doing pretty well right now.

Adobe's stock is the cheapest it has been in some time

Lost in its Figma acquisition announcement were Adobe's solid Q3 results. Revenue was up 13% year over year to $4.43 billion -- a new Adobe record. It also produced over $1.5 billion in free cash flow, enough to offset the Figma acquisition in under two years, if it maintains those levels.

Adobe's net profits were down for the quarter, but that was mainly due to higher taxes.

To wrap up the year, sales are projected to grow about 10% in the fourth quarter. Once again, earnings per share (EPS) are expected to decline slightly on a GAAP basis from $2.57 in 2021 to $2.44 in Q4.

Adobe's business is marking its time in a period when software companies will find growth difficult. But, investors have a chance to purchase the stock for its lowest valuation in nearly 10 years.

ADBE Price to Free Cash Flow Chart

ADBE Price to Free Cash Flow data by YCharts

At this price, it's almost impossible to ignore the value Adobe's stock represents. The Figma acquisition may be expensive, but its technology and platform will boost the company's results in the coming years. So consider me a buyer of Adobe's stock at today's bargain-bin price.