Adobe Inc. (ADBE): A Bull Case Theory

We came across a bullish thesis on Adobe Inc. on Compound & Fire’s Substack. As of 8ᵗʰ July, Adobe Inc.’s share was trading at $373.38. ADBE’s trailing and forward P/E were 23.92 and 18.17 respectively according to Yahoo Finance.

Adobe Inc. and ServiceNow are two tech giants competing in the quality investing space. Adobe, a leader in digital media, marketing, and creative solutions, has a proven track record of innovation and consistent value creation. The company’s financial strengths include high gross margins, an impressive ROIC of 25.4%, and a low capex/sales ratio. However, it also has some concerns, such as high goodwill and intangibles at 44.9% of assets, significant stock-based compensation of 8.8% of revenue, and low insider ownership at 0.17%.

In contrast, ServiceNow, a rising star in cloud-based IT service management, has rapid growth and a strong balance sheet. However, it also has some weaknesses, including low insider ownership at 0.16%, a notable increase in shares outstanding by 21.8% in recent years, and very high stock-based compensation of 15.9% of revenue. Adobe’s Investment Readiness Score of 81.6 edges out ServiceNow’s 72.9, reflecting a stronger overall profile despite its challenges.

The market reality check reveals that Adobe’s FCF yield of 5.87% is attractive compared to the 10-year U.S. bond yield of 4.2%, suggesting potential undervaluation. ServiceNow’s FCF yield of 1.7% indicates a lower yield and significant overvaluation. Adobe’s stability and growth potential make it a winner in this showdown, earning a place on the watchlist for a deep-dive exploration. ServiceNow, on the other hand, is removed from the watchlist due to its score falling below the 80-point threshold.

Previously, we covered a bullish thesis on Adobe Inc. by jackandjillonthehill on Value Investing Subreddit Page in May 2025, which highlighted the company’s dominant position, high-margin software, and strong business fundamentals, including operating margins of 36% and free cash flow margins north of 40%. The company’s stock price has depreciated by 2.02% since our coverage. Compound & Fire emphasizes Adobe’s fair valuation, strong cash flows, and growth opportunities in AI and digital content and shares a similar view, on Adobe’s financial strengths, including high gross margins and an impressive ROIC of 25.4%, but also notes concerns such as high goodwill and intangibles.

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Disclosure: None.