Adobe Systems Incorporated (ADBE), salesforce.com, inc. (CRM), Marketo Inc (MKTO): Is This Company Overvalued?

Page 2 of 2

Signals of overvaluation

Oldschoolvalue financial spreadsheets confirm that Adobe’s current stock price is higher than the value its fundamentals dictate. A discounted cash flow model with a 9% discount rate, 3% terminal growth rate and 5% average cash flow growth rate for the next 10 years shows a fair value of $37 per share. This implies a 21% downside.

Source: Oldschoolvalue

Final foolish thoughts

While Adobe’s transition to a subscription cloud based business model brings new opportunities, it’s over optimistic to assume this comes with a quick or huge growth in revenue once the transition is complete.

Adobe faces stiff competition in cloud marketing and in its Creative Cloud flagship unit. With the end of Flash looming and the effect that could have on the company, Adobe’s current valuation may not be sustainable in the medium run.

The article Is This Company Overvalued? originally appeared on Fool.com and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems and Salesforce.com. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2