Ramping up competition with DocuSign (DOCU), diverse software and analytics leader Adobe (ADBE) has entered a new buy zone. Adobe stock joins fellow software stocks Microsoft (MSFT) and ServiceNow (NOW) on the Leaderboard list of top growth stocks.
Adobe stock, MSFT and NOW stock have also earned spots on IBD Long-Term Leaders.
Last month, Adobe raised its annual targets for fiscal 2021 after reporting rising earnings and sales growth for Q1, ended March 5. In Q1, Adobe posted 38% EPS growth, marking a second straight quarter of accelerating profits. After three quarters of 14% revenue gains, the Silicon Valley-based company saw sales jump 26%.
The cloud computing leader delivered record quarterly revenue of $3.91 billion in fiscal Q1. President and CEO Shantanu Narayen said Adobe is raising current fiscal year estimates “based on the tremendous opportunity across our business and our continued confidence in our global execution.”
He added that “Adobe’s Creative Cloud, Document Cloud and Experience Cloud have become mission critical to all customer segments — from students to individuals to large enterprises — across the world.”
Adobe stock broke out of a cup-shape base earlier in April and remains in the buy zone.
Adobe Sign Vs. DocuSign
In March, Adobe announced a partnership with all 50 states to modernize digital experiences for citizens through Adobe Experience Cloud and Adobe Document Cloud.
Adobe Experience Cloud helps governments revamp their online presence and make their websites and apps easier to navigate. It ensures personalized, real-time content and forms that work on any device. Governments have also adopted Adobe Document Cloud to optimize internal document workflows, and Adobe Sign to power the entire e-signature process.
Adobe Sign competes with DocuSign for handling e-signatures and other digital documents.
While DOCU stock has soared from a September 2019 breakout, the stock has stumbled recently. Earnings growth has been strong, averaging 636% over the last three quarters. Analysts expect 125% EPS growth for the current quarter.
While not growing at that rapid clip, Adobe has delivered average annual earnings growth of 27% over the last three years. It earns an A SMR Rating, boosted by a 42.3% pretax profit margin in fiscal 2020 and a 41.2% return on equity.
As a much more diversified company across multiple businesses, Adobe’s $246 billion market capitalization is several times that of DocuSign’s $43 billion market cap.
Adobe Stock Signs Into Buy Zone
While ServiceNow stock is setting up a new chart pattern, Adobe stock and Microsoft have both already broken out. MSFT stock is extended from its recent breakout, while ADBE stock remains in a buy zone.
Adobe, Microsoft and ServiceNow are all half positions on Leaderboard.
The relative strength line for Adobe stock has lagged since the stock hit a new high in early September 2020.
Indicating a technical test, the 10-week and 40-week moving averages are moving sideways and in unison. It would be positive to see the shorter-term 10-week line move decisively above the longer-term 40-week moving average.
With its next earnings report not due until June, see if Adobe reaches the top of its buy zone, which extends to 531.94.
On Monday, Adobe stock fell 1.7% to 516.17 in below-average volume.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
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