Is Adobe Stock’s 22% Year-to-Date Decline a Buying Opportunity?

Adobe Systems (NASDAQ: ADBE) has significantly outperformed the broader market over the long term, with staggering gains of more than 660% in the last decade and over 2,180% since April 2004, propelling its market capitalization to $212 billion. However, despite these remarkable achievements, ADBE stock trades 32% below its all-time highs and has experienced a downturn of over 22% in 2024.

Following the release of its Q1 results for fiscal 2024 in February, Adobe faced a sharp decline in its stock price, plummeting nearly 14% in a single trading session. Although surpassing consensus estimates on revenue and earnings, a tepid top-line forecast for Q2 triggered the sell-off, marking the stock’s most significant daily drop since September 2022.

In fiscal Q1 of 2024, Adobe reported revenue of $5.18 billion and adjusted earnings of $4.48 per share, exceeding analysts’ expectations. However, its Q2 revenue projection of $5.25 billion to $5.30 billion fell short of consensus estimates, as did its earnings forecast of $4.35 to $4.40 per share.

This disappointing outlook led to a flurry of analyst downgrades, with Bank of America (NYSE: BAC) reducing its price target on ADBE from $700 to $640, Barclays (NYSE: BCS) lowering its target from $700 to $630, and Morgan Stanley (NYSE: MS) maintaining a price target of $660. Despite these revisions, all three firms maintained positive ratings on the stock, citing optimism about Adobe’s Firefly, a generative artificial intelligence tool, and the underlying strength of its Creative Cloud business.

Out of 31 analysts covering ADBE stock, the majority recommend it as a “strong buy,” with a few suggesting a “moderate-buy” or “hold,” and only two recommending a “strong sell.” The mean target price for ADBE stock is $626.31, representing a potential upside of 34.6% from Friday’s closing price.