When Adobe Inc. (NASDAQ:ADBE) released its most recent earnings update (31 May 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Adobe performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see ADBE has performed.
How Well Did ADBE Perform?
ADBE's trailing twelve-month earnings (from 31 May 2019) of US$2.7b has jumped 23% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 42%, indicating the rate at which ADBE is growing has slowed down. What could be happening here? Well, let's look at what's occurring with margins and if the whole industry is facing the same headwind.
In terms of returns from investment, Adobe has invested its equity funds well leading to a 27% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 14% exceeds the US Software industry of 6.4%, indicating Adobe has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Adobe’s debt level, has increased over the past 3 years from 12% to 24%.
What does this mean?
Adobe's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Adobe to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ADBE’s future growth? Take a look at our free research report of analyst consensus for ADBE’s outlook.
- Financial Health: Are ADBE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 May 2019. This may not be consistent with full year annual report figures.
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