I have been reading the posts on Adobe. The bulls cannot understand why the stock continues to fall. I would like to discuss the real issue that separated the bulls from the bears on this one.
ADBE has super high profit margins. The real difference between the bulls and the bears is that the bulls believe this is a positive and the company deserves an average of better PE.
The bears feel that a high profit margin is impossible to maintain and that the stock needs a discount because of that.
When you do a present value on this company, your result is dependent on what you assume the margins will be in the future. Both the bulls and the bears agree that the next few years will have good earnings. The bulls seem to feel that Adobe can maintain its margins while the bears feel they cannot.
The bears look at the margins and believe that there will be considerable completion in this market. Apple already has indicated that they are looking at this market.
I don’t know who is correct. I am watching and if it gets low enough that there is room for margins to decline, I will get in.
If it never gets that low, I wish the bulls good luck.