Is Adobe Systems (ADBE) a Buy After Strong Results?

Adobe Systems (NASDAQ:ADBE) generated better than expected performance in the first quarter this year, beating analysts’ forecasts and the recent year’s financial numbers by a wide margin. The company’s first quarter revenue of $1.68 billion increased almost 21% compared to the same period last year, topping the consensus estimate by $40 million.

Revenue by segment: Digital Media revenue $1.14B, Digital Media ARR revenue $4.25B, Creative revenue $942M and Adobe Marketing Cloud revenue $477M.

On the other hand, the company generated massive growth in earnings per share, thanks to its investments in higher margin areas and strong growth in revenues. Its operating income increased 40%, while net income surged 42% over the prior year period.

“Adobe achieved record revenue, profit and cash flow in Q1,” said Mark Garrett, Adobe executive vice president and chief financial officer. “Our solid execution and business momentum combined with strong market tailwinds give us confidence in our ability to continue to deliver strong financial results. We remain bullish about our prospects for the rest of 2017 and beyond.”

Following a strong financial performance, its share price extended the rally to an all-time high of $122 a share (growing to $127 after hours). ADBE stock price soared nearly 18% since the start of this year, moving the twelve-month rally to 38%.

Moving forward, the company appears in a strong position to generate a sustainable double-digit growth in revenue and earnings in the second quarter this year. The company expects its Q2 revenue to stand in the range of $1.73B, relative to a consensus estimate of $1.72B. Its earnings per share is likely to stand in the range of $0.94, higher than the consensus of $0.91.

Adobe also appears in a strong cash position to invest in growth opportunities. Its debt to equity ratio is standing around 0.3, compared to the industry average of 0.5. ADBE generated record cash flow in the latest quarter, while its cash generating potential will increase further in the coming days, supporting a strong growth in earnings. Therefore, Adobe System shares are presenting a buying opportunity despite trading at an all-time high.

The author has no positions in the above mentioned companies.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.