Are Strong Financial Prospects The Force That Is Driving The Momentum In Adobe Inc.’s NASDAQ:ADBE) Stock?

Adobe (NASDAQ:ADBE) has had a great run on the share market with its stock up by a significant 7.1% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Adobe’s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Adobe is:

61% = US$7.1b ÷ US$12b (Based on the trailing twelve months to November 2025).

The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.61 in profit.

Check out our latest analysis for Adobe

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

To begin with, Adobe has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 14% which is quite remarkable. Probably as a result of this, Adobe was able to see a decent net income growth of 5.5% over the last five years.

As a next step, we compared Adobe’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 26% in the same period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is ADBE fairly valued? This infographic on the company’s intrinsic value has everything you need to know.

Adobe doesn’t pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

On the whole, we feel that Adobe’s performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.