Not That Bad, But Not That Good Either: ADBE

I’ve been seeing bullish thesis’s for ADBE everywhere. I get it. Adobe is a great company. But ADBE is not a great stock. Most claims I hear are “great earnings” “Growth on sale” “moat + shrinking forward PE” or similar. In his book “The Most Important Thing,” Howard Marks proposes the concept of second-level thinking, which is a more complex analysis compared to first level-thinking, which is a more superficial one. I think there’s a lot of first-level thinking on ADBE in the market right now. A lot of investor price anchoring. And a lot of fixation on accounting profit growth, instead of real compounding growth. I say this because most of the earnings growth is supported by share buybacks and not from increasing cash flow from operations. In FY 21, ADBE had 7.23 Billion in CFO, and repurchased $4.67 Billion common stock. In FY 25, adobe had $10 Billion in CFO and $12 Billion in share buybacks. So in a 5 year period, the CFO grew at 8.45% cagr, while the share buybacks grew at 26.61%. But notice that current unearned revenue increased by 0.774 B in 2025. If you do a CFO 4-year cagr that’s adjusted for cash received for services rendered, ADBE’s 4-year cash flow growth is 6.28% Why make this adjustment? Because unearned revenue is extra cash today for future liabilities. (Likely to be 2026 cash flow headwinds) Now to round out my analysis, I calculate the rough cagr of CPI inflation 2021-2025: about 6%. Net these cagr’s: 6.28-6 =0.28% Adjusted for services rendered and inflation 0.28% CFO cagr for ADBE 2021-2025- basically adobe’s CFO is moving in lockstep with inflation Earnings growth had a CAGR of 13.5% roughly, so the PE multiple improvement seems to be exclusively from inflation and buybacks. Since the rate of buyback increase can’t mathematically continue, it’s likely the metrics that justify a higher share price have negative convexity on the horizon. Overall, I’m not saying ADBE is deteriorating, but I am saying most of the reasons people give to forecast a higher share price, are based on deceivingly optimistic metrics.