Buffett and Beyond Weekly Stock. ADOBE isn't what it used to be. Sept 14 2024

well hi everyone welcome to the buffet and Beyond research stock of the week and we're going over Adobe this week and folks is Adobe beginning to lag the rest of the computer stocks and we're going to take a look at that because Adobe was one of the better computer stocks out there for a long time and well let's just see what's going on and remember folks if you want to live on this beach like Jimmy Buffett once did you've got to learn how to invest even better than Warren Buffett does now don't forget that if you want a full free month subscription to any of these videos that we have we put out three a week three different videos on a Saturday you get the three videos and on Tuesday Wednesday Thursday and Friday you get a letter on the market and timing the portfolios all we need is your name and email we want you to take get a free month subscription so you can see what we're all about all you have to do is go to buffet and beyond.com Buffett is spelled with two fs and two T's Buffett and beyond.com and give us your name your email and you'll start getting a full month free subscription of to our letters and let's look at Adobe well they develop various computer software products that enable users to create transfer and print electronic documents and in fiscal 2022 the company operated in the following primary business SE segments digital media digital experience and Publishing and advertising and adobe's leading software products include and folks you all know these illustrators Photoshop in design and of course acrobat it has about 29,2018 months ago and the green line represents Adobe and these are fiveyear averages and the blue line represents the average stock out there and we found out that the average stock in the the S&P 500 is about the average stock across all the large indices so we compare adob using the clean Surplus methodology which allows us to compare against the average stock so the clean Surplus return on Equity think of your bank account would you rather put money in a bank account that's giving you a 13.5% return on Equity or one that's giv you 21% so the clean Surplus Roe is a comparable across all stocks that's the beauty of this clean Surplus relative to traditional accounting now let's look at income income was way up 19.7% versus the average stock at 133% Revenue up 16% while the average stock up 7% so it's in some cases it's doubling the average stock out there so everything looked good up until about 6 seven months ago now let's bring this chart up to date up all of a sudden we see this starting to go down let's go back again yeah about six seven months ago the net income was leading the average stock by a nice nice margin and now it's falling below the average stock revenue is still there but they're not bringing it to the bottom line so we have a little problem here so let's take a closer look and what we want to do is look at this clean Surplus return on Equity now to get into our growth portfolio we want to see a clean Surplus Roe of 20% or better on average that's for the average portfolio so in other words we could have some stocks that have a below 20% Roe While others have above a 20% Roe but the stocks have to fit in that's what a portfolio is all about the stocks have to fit in and complement one another it's not just a group of stocks so we see Adobe was doing real well up until 2021 and then 2022 just started falling falling this year is having a difficult year but it's supposed to or predicted to come back a little bit next year but notice we have four numbers here including projections for 2025 that are under 20% and when we look at these averages this is the five uh 10e average down here 5year average average Roe and the three-year average Roe and you can see these are starting to come down little by little now what is the clean Surplus return on Equity actually measure it measures that the money it or the company is making money indeed but when you see seing lower numbers like this then we could say that the earnings are growing but they are growing at a decelerating rate you see down here when we had this group of over 20% the earnings were growing at an accelerating rate over 2017 and 2016 so accelerating growth and earnings now all of a sudden the growth and earnings still growing and growing nicely more than the average company of 133% but the earnings are starting to decline in their acceleration or deceleration yeah they're putting all the money back into the company that they're making which is good but this net income growth we see the 5year averages this net income should be about 133% and it's not so here's where we're falling down this year 2024 expected to rise again for 2025 but when you translate it into clean Surplus Equity it's not that 20% that we're looking at now the revenue growth is above average the revenue growth the average stock is 7% or so and this company is doing more than better than the average stock so we have a little dichotomy here in that the revenue growth is not transferring into net income growth so something is going on here now let's look at what this company has done over five years the black line This is price black Line's the S&P 500 and we can see that adobe was doing real well this is 1920 19 21 22 when the market was down Adobe really fell and so did most of the tech stocks the tech stocks and the semi conductors did fall more than the General market why because and how do we compare that the S&P 500 fell almost 20% during this time period here but the NASDAQ fell about 34% so yeah the tech and semiconductors fell more than the average stock because they had gone up more than the average stock and then all of a sudden this stock started regaining its composure and I'm talking about Adobe and then all of a sudden started taking off and now this year 2024 it had a tough tough year in here starting to come back a little bit but boy oh boy we're looking a little es skew at this stock to remain in our growth portfolio it's not in our top stocks in the ETF portfolios it's not in any of those it's just in our growth portfolio and we're not sure we're going to keep it in there by the end of the year remember we change our stocks right about the end of the year if any changes need to be made and then we rebalance so we just have to see what's going to happen here but we're not too excited about Adobe staying in our portfolio we'll just have to wait and see over the past one year black line S&P 500 you can see where it has had trouble this year and now it seems to coming be coming back with the market uh quite a bit reaching recent highs in here not former Highs but recent highs right in here and we'll just see what has to happen but Adobe has been disappointing us this year and then just yesterday bad news the stock fell a little bit it's not shown on this chart but it fell a little bit so it's giving us more ammunition To Say Goodbye Adobe not sure yet it's still a better than average stock don't get me wrong let's look over five years again better than average stock so it's a pretty good stock but there are better stocks out there so folks we had a very very good week this Market came roaring back this week and we like to talk about Fridays because if the market closes up on Fridays that means the Traders out there and the other Market participants are pretty confident in themselves because they have to wait Saturday and Sunday before the markets open again and they're willing to take a chance on buying socks on a Friday and we've had five out of the past six Fridays positive so we're looking pretty good even though we're in seasonal weakness which we boy oh boy we did for the first week in September it wasn't pretty at all and then this past week looking pretty good so folks you go out you forget about the market get your mind back on your family go out for a walk be alone get your head clear your head and have dinner with Sunday dinner with your family and folks most of all be safe and we'll see you back here with our Tuesday Morning letter