Should you buy Adobe (ADBE) stock before earnings?

2026-06-09 · By Lubin Danilo, founder of Lubin Investment

Adobe is an elite company trading cheaper today than at any point in the last five years. But a good company and a good price are two different things. The market fears AI will destroy it, and even after the fall, the stock still trades above my reasonable buy price. Here is how I decide, with no bet and no emotion.

• Adobe is an elite company: a 34% free cash flow margin, a deep moat, a balance sheet with almost no debt.
• Its stock has lost nearly half its value in two years, out of fear of artificial intelligence.
• As a result, its cash has never been this cheap in five years: about 12 times, versus an average of 33.
• Cheap does not mean a bargain: on my assumptions, the stock still trades about 35% above my reasonable buy price.
• My rule, and the thread of this whole piece: judge the quality of the company and the price of the stock separately.

The trap almost everyone falls into

Adobe has lost nearly half its value in two years. Everywhere the same sentence: artificial intelligence is going to kill it. Midjourney generates images, OpenAI does video, Canva nibbles at design. The maker of Photoshop is supposedly the next Kodak.

When I look at a stock, I always separate two questions most people confuse. One: is this a good company? Two, entirely apart: is this the right price? A great company bought too expensive is still a bad investment. A mediocre company, even dirt cheap, stays mediocre. Mixing the two is the number one source of error.

Is it a good company? (quality)

I do not trust my gut. I run the company through concrete financial criteria: is it profitable, are its sales and cash growing, does it buy back its own shares rather than waste money, is its debt manageable? One number is enough to feel Adobe: its free cash flow margin reaches 34%. Free cash flow is the money that truly stays in the bank once every bill is paid (salaries, machines, taxes). A 34% margin means that on 100 dollars of sales, 34 end up as genuinely available cash. Most companies top out around 10.

Adobe's real treasure: its moat

But a good balance sheet does not tell the whole story. What convinces me is Adobe's moat: its competitive ditch, what stops a rival from taking its place. Ask a video editor or a marketing team to drop Premiere or Photoshop: they cannot. Years of files, of habits, of training. As a result, 94% of Adobe's revenue is subscriptions that recur every year, and the company holds nearly 58% of the global creative software market. On management, the sign that does not lie: it buys back its own shares and carries almost no debt. This is not a fragile company, it is infrastructure.

So why did the stock collapse? (price)

Because the market does not pay for a company, it pays for a story. And Adobe's story is scary: its growth is slowing (around 11% a year, versus more than 20% before), and AI could erode its ability to set its prices.

To measure what the market is willing to pay, I look at one simple ratio: the P/FCF (price to free cash flow). It is the share price divided by the free cash flow it generates each year. A P/FCF of 12 means you are paying twelve years of that cash today. The lower it is, the cheaper it is. Adobe trades at about 12 times its free cash flow. Its five-year average was 33. Its sector runs near 60. So the market treats one of the finest cash machines in tech as a finished story.

The real debate (and the trap)

The whole thesis comes down to one question: do you believe AI will truly break Adobe, or that the fear is overblown? If you think Adobe defends its turf, the stock is abnormally cheap. If you believe in disruption, this low price is a trap, not a windfall. A low P/FCF is never a bargain in itself: it only is if the quality holds. That is exactly why I judge quality before price.

How I decide, without emotion

On prudent assumptions, my reasonable buy price for Adobe sits around 163 dollars. The stock is worth about 251. So I am still roughly 35% above the entry point I allow myself. I do not rush in: I note a target price, and I wait for it to come to me. Before earnings, expectations are low. Two scenarios: a disappointment brings the price closer to my entry point, a positive AI surprise can lift the multiple from its low. In both cases, I know what to do, because I have a price, not an emotion.

In short

Adobe is an elite company, with the cheapest cash in its history, that I watch very closely without paying any price for it. Knowing whether a company is good, and at what price to buy it, separately: that is all I ever wanted to be able to do in a few seconds for any stock. That is why I built my investment site.

FAQ

What is free cash flow?

The money a company actually keeps after paying everything it needs to operate and invest. It is harder to dress up than accounting profit, so I trust it more.

How do I judge the quality of a company?

On objective financial criteria: profitability, growth in sales and cash, share buybacks, margins, debt, return on capital. Quality is the soundness of the business, independent of the stock price.

Is a low P/FCF always a bargain?

No. A low price can hide a company in decline. It is only attractive if the quality is there too. Hence my rule: quality first, price second.

Should you buy Adobe before earnings?

It depends on your conviction about AI and your price discipline. Expectations are low: a disappointment brings you closer to a good entry point, a positive surprise can revive the stock. This is not investment advice, do your own research.

Voir l'analyse ADBE sur Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).