Good writeup. As an existing shareholder, I appreciate the DCF valuation. It reminds me that there are more important things to focus on vs the price offered by the street.
Thank you for the kind words, John! Yes, it's easy to fall for the headlines noise that influences the price in short-term but the real value is in the long-term perspective, and in my opinion, Adobe has a good one! Thank you for your comment! :)
Thank you, Daniel, the feedback really means a lot! The calculations are significantly sensitive and extremely dependent on inputs/assumptions, especially WACC, so it's fair that 10 people get 10 different results. I try to pick as objective numbers as possible, they're still influenced by my conviction in the moat of a particular company and it's still just human calculating. :) Have a nice weekend!
Yeah, that wasn’t meant as criticism, more as appreciation. Totally agree with you, there are so many input factors that deviations can get big quickly. But I think at the end of the day our calculations point in a similar direction. Have a great weekend too!
I took it as appreciation! haha which i appreciate since it comes from someone clearly knowing the drill. :) I believe in Adobe as a company so it'll be interesting to observe if I'm (we're) right. :)
Thank you, i appreciate it! The same for me, I'm averaging down because i believe in the fundamentals so the lower the price, the better deal for me :)
Good writeup. As an existing shareholder, I appreciate the DCF valuation. It reminds me that there are more important things to focus on vs the price offered by the street.
Thank you for the kind words, John! Yes, it's easy to fall for the headlines noise that influences the price in short-term but the real value is in the long-term perspective, and in my opinion, Adobe has a good one! Thank you for your comment! :)
The result differs from my own calculation, but I love how transparent and easy to follow your presentation is! Really enjoyed going through it!
Thank you, Daniel, the feedback really means a lot! The calculations are significantly sensitive and extremely dependent on inputs/assumptions, especially WACC, so it's fair that 10 people get 10 different results. I try to pick as objective numbers as possible, they're still influenced by my conviction in the moat of a particular company and it's still just human calculating. :) Have a nice weekend!
Yeah, that wasn’t meant as criticism, more as appreciation. Totally agree with you, there are so many input factors that deviations can get big quickly. But I think at the end of the day our calculations point in a similar direction. Have a great weekend too!
I took it as appreciation! haha which i appreciate since it comes from someone clearly knowing the drill. :) I believe in Adobe as a company so it'll be interesting to observe if I'm (we're) right. :)
Really interesting article, thanks for sharing.
I thought ADBE was pretty good value at $380 in spring 2025 and yet, it just keeps drifting lower!
Thank you, i appreciate it! The same for me, I'm averaging down because i believe in the fundamentals so the lower the price, the better deal for me :)
MULTISCORES REPORT: ADOBE INC. (ADBE)
Date: November 25, 2025
Benchmark: S&P 500
Current Price (Nov 24 Close): $318.73
52-Wk Range: $311.59 - $557.90
Drawdown from High: -42.9%
================================================================================
1. OVERVIEW
================================================================================
[DCS] Data Confidence Score: 95/100 (Exceptional)
*Excellent transparency and predictability due to the subscription model.*
Adobe is currently in a "Deep Value / AI Monetization" regime. The stock price has suffered a
major correction, down over 42% from its 52-week high, bringing its valuation (P/E ~20x) to
a massive discount relative to its historical and peer averages (historical avg. ~47x). This
correction has occurred despite strong fundamental execution, including successful launch
and monetization of **Firefly** (Generative AI) and elite margins.
The company retains its structural dominance and is now trading at a valuation that implies
either severe competitive pressure or a major recession. The current price represents a
deeply asymmetric opportunity for a high-quality subscription software business.
Top-Level Score: 95 / 100 (Exceptional)
Probability Adjustment: +0.38 (Exceptional Outperform)
Implied Probability: 88.0% (vs 50% Baseline)
================================================================================
2. RAW DATA SNAPSHOT (Q3 FY25 Actuals)
================================================================================
* Valuation: P/E (TTM) ~20.2x | P/S (TTM) ~6.1x (Massive historical discount)
* Profitability: Gross Margin 88.5% | Operating Margin 38.6%
* Efficiency: Annual Recurring Revenue (ARR) $20.0 Billion | FCF $2.1B (Q3)
* Growth (Q3 '25): Revenue $6.06B (+12% YoY) | Adj. EPS $4.50 (Beat)
* Catalyst: Announced acquisition of Semrush ($1.9B) to boost Digital Experience segment.
* Risk: High Stock-Based Compensation (SBC) depresses GAAP EPS.
================================================================================
3. SUBSCORES
================================================================================
[QCS] Quality & Core Strength: 98/100 (Exceptional)
------------------------------------------------------------
* Margins: **88.5% Gross Margin** and $20 Billion ARR are structural indicators of a
monopoly with massive pricing power and predictable cash flow.
[E_QCS] Emerging Quality / Optionality: 95/100 (Exceptional)
------------------------------------------------------------
* AI Integration: **Firefly** (Generative AI) monetization has de-risked the business
from competitive AI threats and established a new, accelerating revenue stream.
[AIQS] AI / Theme Quality Score: 90/100 (Exceptional)
------------------------------------------------------------
* Relevance: Adobe successfully monetizes AI at scale, placing it at the forefront of
commercial AI applications.
[PGS] Profitability-Linked Growth Score: 80/100 (Strong)
------------------------------------------------------------
* Trends: 12% revenue growth is high-quality because the margin profile is near-perfect
and the growth is accelerating due to AI.
[VGQS] Valuation-Gated Quality/Growth: 95/100 (Exceptional)
------------------------------------------------------------
* Relative Value: **EXTREME DISCOUNT.** A 20x P/E ratio for a software leader with a
monopoly and 88.5% margins is fundamentally mispriced, suggesting a massive value opportunity.
[DVCS] Drawdown-Value-Catalyst: 95/100 (Exceptional)
------------------------------------------------------------
* Setup: The **43% drawdown** from the high creates a deep margin of safety. The $1.9B
Semrush acquisition strengthens the Digital Experience segment.
[FMS] Fundamental Momentum Score: 75/100 (Good)
------------------------------------------------------------
* Direction: Q3 Beat and strategic M&A execution indicate stable fundamental momentum.
[IMS] Institutional Momentum Score: 80/100 (Strong)
------------------------------------------------------------
* Flows: Core holding for quality and growth funds; the drawdown is likely technical.
[RRS] Risk & Resilience Score: 70/100 (Good)
------------------------------------------------------------
* Resilience: The structural moat across Creative Cloud and Document Cloud makes the
business highly resilient.
[SBCP] SBC / Dilution Penalty: -10 (Severe Penalty)
------------------------------------------------------------
* Discipline: High SBC remains a key detractor from GAAP earnings.
================================================================================
4. REGIME OVERLAY + SENSITIVITY MATRIX
================================================================================
Current Regime: Quality Software / Deep Value
* Impact: The model finds the current price to be entirely disconnected from the
underlying fundamentals.
* Tilt: The score maximizes the Quality (QCS, E_QCS) and deep-value (VGQS, DVCS) factors,
producing a maximum conviction signal that the stock should revert to a higher valuation.
================================================================================
5. COMPOSITE PROBABILITY (vs S&P 500)
================================================================================
Base Probability: 50.0%
Adjustments (Raw): +0.40
DCS Multiplier (0.95): x 0.95 (High Confidence Data)
Final Adjustment: +0.38
Final Probability: 88.0% (Exceptional Outperform)
================================================================================
6. INTERPRETABILITY LAYERS
================================================================================
Edge Decomposition:
* Structural Edge: Exceptional (Monopoly status, massive switching costs, pricing power).
* Timing Edge: Exceptional (The deep drawdown provides an outstanding entry point
for a structural compounder).
Timing Posture:
* Signal: "Maximum Accumulation." Buy at the current discount, as the valuation
is highly compelling relative to the business quality.
Red Flag Checklist:
[ ] Organic Growth Negative? NO (+12% YoY)
[ ] FCF Deterioration? NO
[ ] Margin Erosion? NO
[x] Regulatory Event Risk? WATCH (Semrush acquisition carries minor regulatory risk)
[x] SBC Acceleration? ACTIVE (High SBC)
================================================================================
7. PLAIN-ENGLISH SUMMARY
================================================================================
Adobe is arguably the highest-quality large-cap software company in the market, now
trading at a distressed valuation. Its core business (Creative Cloud, Document Cloud)
is a structural monopoly with **88.5% Gross Margins** and its future (AI monetization
via Firefly) is secured.
The recent 43% price crash, for no material fundamental reason, has pushed its P/E
ratio down to historically low levels (around 20x). This valuation completely ignores
its market dominance and growth prospects.
**Verdict:** An **Exceptional Outperform** signal relative to the S&P 500. This is a
rare chance to buy an irreplaceable asset at a deep discount.
My Discounted FCF
.
FCF 2025 Aug TTM
= (9.599÷0.4186)
= $ 22.9311992355
.
FCF 3YCAGR
= 100×((9.599÷7.129)^(1÷3)-1)
= 10.424589211 %
.
Clean Discount Rate
= 8.54225461 %
.
Dividend Yield = 0 %
.
Period
= 10Y
.
Discounted FCF (10Y, CAGR_3Yfcf 10.424589211%, discounted each year)
= 22.9311992355×(1.1042458921÷1.0854225461)×(1-(1.1042458921÷1.0854225461)^10)÷(1-(1.1042458921÷1.0854225461))
= $ 252.3622881993
.
Or
.
Discounted FCF (10Y, CAGR_3Yfcf 10.424589211%, discounted one time only at the 10th year)
= 22.9311992355×1.1042458921×(1-1.1042458921^10)÷(1-1.1042458921)÷1.0854225461^10
= $ 181.4565164724
.
Or
.
Discounted FCF (Remaining Life 999 Years assuming zero FCF growth, discounted each year)
= 22.9311992355×(1÷1.0854225461)×(1-(1÷1.0854225461)^999)÷(1-(1÷1.0854225461))
= $ 268.4443426955
Clean Discount Factor
=
(1.04669×(1+0.565×1.1025)÷(1+0.565))÷(1+0)
= 1.0854225461
.
Clean Discount Rate
= 8.5422546086 %
.
Reference :
.
The Logic Way of Deciding a Clean Discount Factor
https://open.substack.com/pub/absolutetoal/p/the-logic-way-of-deciding-discount?r=5g11d4&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
.
The Logic Way of Deciding a DESIRED Clean MOS Factor (N Years Back)
https://open.substack.com/pub/absolutetoal/p/the-logic-way-of-deciding-a-clean?utm_source=share&utm_medium=android&r=5g11d4
I generally build my models conservative so they can surprise more than they disappoint. :) But I agree with you!