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How Much Upside Is Really Left for Adobe Systems (ADBE)?

Predicted gains for ADBE may already be baked into the share price

by 6/30/2014 2:10:46 PM
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I think a critical question with regard to what I am sure is the fundamental-based view on Adobe Systems Incorporated (NASDAQ:ADBE) -- as expressed in this Barron's piece -- is to be able to discern whether this "20% upside" is applicable to:

  • The current share price
  • The share price before all this subscription-based success was revealed

Unfortunately, analysts will regularly confuse these two concepts, so you have to make your own independent judgment as to how much of this stuff is already priced in.

For example, ADBE is currently trading just about 20% above its 40-week moving average, represented by the orange line on the first chart below. If you consider the 40-week to represent "all known information" about ADBE and its prospects before the most recent earnings (and the success of the subscription model), one could argue this 20% upside has now been fully priced in. Similarly, the +20% year-to-date (YTD) level is at $71.84 -- not far below ADBE's last sale -- and once again, we can play this hypothesis against the information priced into ADBE's price at year-end and conclude this upside is now "in there."

I think this puts even more emphasis on this +20% YTD level holding as a post-gap low, and so a move back below could be even more negative than I had been thinking. It's also not the biggest positive that the Barron's piece has had such a minor post-weekend effect (so far, anyway) -- seems like the stock was again looking to pull back to test +20% YTD before the weekend buyers kicked in.

The second chart below is a 30-minute bar, and my experience had once been that I wanted to look to enter from the long side after these low-volatility sideways moves following a big gap rally, and by so doing I have most often gotten burned. I would see this as especially of concern here if $71.84 is taken out.

Weekly Chart of ADBE since February 2012
30-Minute Chart of ADBE since June 10, 2014

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