Here’s Why Now’s Not The Time To Panic Out Of Stock ADBE
Monday’s price action on Wall Street was as wild as it could have been. The indices crashed 5% at the start, but then took a win at the close. It really felt like a sellout and for no obvious reason. There is enough political unrest and economic headlines to blame. In reality, these were human emotions that impacted stock prices. One group of stocks stood out with relative strength. Adobe (NASDAQ: ADBE) shares and Roku (NASDAQ:ROKU) increased by 4% to name just two.
I mention these two because they have been on the investor hate list for some time. At its low on Monday, ADBE stock was 31% below its highs of just two months ago.
Clearly, investors can’t make up their minds on Adobe, so let’s declutter the outlook. There are good reasons to be bullish on Adobe. But this will also need a little help from the hints.
ADBE stock is still fundamentally strong
Adobe’s fundamentals are still strong. That’s true despite how hard the company sold it when it reported earnings. Adobe shares fell 15%, suggesting poor ratings from management. In fact, gross revenues and profits have doubled in four years.
The company has achieved this while controlling its expenses since the net profit has almost tripled. Therefore, I can assume that investors panicked because of sentiment rather than facts.
It’s fair to say that there’s nothing wrong with Adobe’s business. It is also fair to say that if the stock market is higher in the future, ADBE stock will also be higher.
Wall Street’s new mantra is a little dumber than before. It’s as if the pros have taken to habits Reddit Monkeys. Although this is unfortunate, knowledge can give us a boost as long as we recognize this reality.
Investing is generally about finding solid companies that are as cheap as possible. The Adobe metrics quoted above prove its strength. You do not believe me ? Let’s break it down a bit further.
Its price-to-sales (P/S) ratio is 15x, which is in line with other growing companies. For example, Microsoft (NASDAQ:MSFT) The P/S ratio is almost 13x. Cloudfare (NYSE:REPORT), on the other hand, has a P/S of 47.3x. Clearly, ADBE’s valuation sits comfortably near the lower end of the scale.
Respect the band
Nevertheless, my opinion did not play into the price action of ADBE shares. The slide from grace has been relentless and brutal. The bears sold every pop without fail. They trapped more bulls along the way.
However, this should change soon as it reaches support. When a stock falls into a consolidation zone, it tends to find lurking buyers.
In this case, the ADBE has fallen to its base level from last summer. He spent nearly nine months trading sideways between $500 and $460 per share. Additionally, it also has a strong volume profile area which translates into support.
As the saying goes, “the price is the truth”. The area below $505 has heavy traffic. This suggests strong interest in Adobe stocks. It’s the opposite of when they say “air resistance” during rallies and at the resistance.
So far my message is positive, but this is where I have to inject a bit of skepticism. Markets are still in the middle of the biggest correction in a while, so I have to respect it. Investors, whatever their conviction, must leave room for doubt. I don’t have to do everything, nor add to the current risk. The goal is to engage with partial long positions to full futures positions.
When stocks spiral out of control seemingly without specific fault in their thesis, I snack. However, the entire small cap sector has been under selling fire for months. Shares in this group have already fallen more than 20% from their highs. Officially, this constitutes a recession on Wall Street. I’d like to think we can recover quickly, but I don’t demand it. I would prefer to see a smooth and orderly rally so we can build a stronger base.
At the date of publication, Nicolas Chahine had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.