The decline of Adobe's (ADBE) stock after a largely positive Q4 earnings release is providing an opportunity for investors to buy shares.
Shares of the software giant slipped over 5% on Friday's open, building on an approximately 10% drop endured by shareholders since the start of October. The move downward has largely been motivated by multiple multi-billion dollar acquisitions that prevented the company from achieving a characteristic earnings beat.
However, with the growth drivers available for Adobe, the recent run downward is only more enticing to many following the stock.
"Digital Media remains the primary earnings per share growth driver for Adobe, so Q4 outperformance and an increase in the FY19 guidance for net new ARR additions should trump any near term investor concerns around higher M&A dilution," Morgan Stanley analyst Keith Weiss wrote on Friday. "As such, we would look to any material pullbacks as a buying opportunity."
Weiss set a $255 price target, offering an attractive premium for longer term investors should his prediction come to fruition.
Many analysts were even more bullish, given the consensus price target remains at the lofty $291.96, according to FactSet.
"We believe investors should focus on Adobe's long-term, durable growth opportunities and we view Adobe as the leading cloud platform for digital creative and experience solutions," Credit Suisse analyst Brad Zelnick said on Friday morning.
Zelnick added that the company's disappointing guidance that was clouded by acquisition charges and foreign exchange headwinds was indicative of the company's classic conservatism, not of a slowdown ahead.
"We believe guidance is generally conservative, with the company outperforming ARR targets by an average 9.9% over the previous 9 quarters," he pointed out.
Zelnick reiterated an "Overweight" rating for the stock and a $300 price target, nearly $70 above Friday's opening price.
To be sure, the company maintains a hefty price tag given its price to earnings ratio which charts at 31.3, which in the current environment makes it unattractive to value-minded investors in the near term, especially as a potential economic slowdown and a more difficult foreign exchange environment lie ahead.
For analysts covering the stock, the price may be worth it.
"With the company continuing to fire on all cylinders while remaining one of the highest efficiency growth stories in our space while trading at a compelling 22x EV/CY20E FCF, Adobe remains a top pick" Piper Jaffray analyst Alex Zukin said, setting a price target almost $80 above Friday's open. "Overall, we get the sense that the demand environment and execution remain strong, core operating leverage is intact, and we remain buyers."