Is Adobe a Buy?

With shares of Adobe (NASDAQ:ADBE) trading around $45, is ADBE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Adobe operates as a diversified software company worldwide. It offers a line of software and services used by creative professionals, marketers, knowledge workers, application developers, enterprises, and consumers. Adobe markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its website at www.adobe.com. Software products and platforms are seeing an increased adoption rate worldwide by consumers and businesses who are seeing increased technology exposure. The efficiency and ease offered by Adobe products make it a viable option to many. Look for Adobe to see rising profits as their products make their way into homes and businesses around the world.

T = Technicals on the Stock Chart are Strong

Adobe stock has been in a consolidation over the last several years but may be getting ready to soar higher. The stock is currently trading near the top-end of a multi-year range so a breakout higher may be imminent. Earnings for the company are approaching so a positive report may be the catalyst the stock needs to head higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Adobe is trading above its rising key averages which signal neutral to bullish price action in the near-term.

ADBE

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Adobe options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Adobe Options

27.35%

90%

88%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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