Adobe's Earnings Are on Track to Grow About Eightfold in a Decade. Why Has Its Stock Lagged the Market So Badly?

A decade ago, shares of Adobe (ADBE +0.51%) closed at about $109. Today, they trade near $243 as I write. That's a rise of about 123%, enough to turn a $10,000 investment into about $22,300.

It seems OK until you compare it to the market. In the same period, $10,000 in an S&P 500 (^GSPC +0.59%) index fund (with dividends reinvested) rose to around $42,100, a gain of about 321%.

And because Adobe doesn't pay a dividend, its stock price is the full return.

In other words, the creative software company has returned less than half as much as the broad market over the last decade. But its business kept growing all along. I think the gap boils down to how much investors were paying for Adobe's profits -- not the profits themselves.

The lag is all from the past five years

In the first half of the decade, Adobe was one of the market's big winners. The stock closed at a record $688.37 in November 2021, more than six times its October 2016 price.

An S&P 500 index fund climbed around 138% over the same stretch.

Since then, the two have switched places. The index fund is up about 77% from that November 2021 close, but Adobe stock is about 65% off its peak.

Shares have dropped about 31% in 2026 alone, from roughly $350 when last year ended.

Much of this year's slide came as investors worried that artificial intelligence (AI) might disrupt software companies. AI agents could take over some of the work businesses pay for one seat at a time, and Adobe sells many of its subscriptions that way. By mid-January, Adobe was already among the S&P 500's worst performers of 2026 as software stocks sold off on these fears.

Earnings kept rising

Showing how much Adobe grew under the surface, the company made $3.01 a share on a non-GAAP (adjusted) basis in fiscal 2016. Five years later, that number was $12.48, and revenue had almost tripled, from $5.85 billion to $15.79 billion. For this fiscal year, management's target calls for adjusted earnings per share between $24.45 and $24.50, on around $26.6 billion in revenue. That's about eight times the fiscal 2016 level.

True, growth has slowed. Adjusted earnings per share compounded at around 33% a year from fiscal 2016 to fiscal 2021, versus about 14% a year since then if Adobe reaches this year's target.

Part of the fall in the stock's valuation was arguably deserved. But the slowdown hasn't become a decline. Revenue has grown 12% to 13% year over year in all three quarters Adobe has reported this fiscal year.

And in the fiscal third quarter of 2026 (the period ended Aug. 28, 2026), Adobe's adjusted earnings per share rose 15% over the year-ago quarter, to $6.13. Annualized recurring revenue from its AI-first products grew more than 150%.

The valuation is where the decade went. In October 2016, investors paid around 36 times Adobe's fiscal 2016 adjusted earnings per share. At the November 2021 high, the stock cost about 55 times its fiscal 2021 adjusted earnings.

Today's price is around 10 times this year's adjusted earnings target.

In other words, earnings per share are on track to grow about eightfold, while the price of each dollar of those earnings has fallen by about 73%. Together, these two numbers explain the stock's 123% gain.

What does 10 times earnings ask of Adobe?

I'd say a valuation of around 10 times adjusted earnings asks very little of Adobe. It's the sort of price the market tends to put on a business it expects to stall or shrink.

NASDAQ: ADBE

Key Data Points

Adobe's earnings per share are still growing at a double-digit rate. If its valuation multiple just stays around 10 times adjusted earnings, shares may climb about as fast as earnings per share from here.

Sure, the risk is that AI one day does to Adobe's growth what the market fears. Management's own target already calls for total annualized recurring revenue to climb 10.2% this year, a little slower than revenue. If that rate keeps falling toward the low single digits, today's price-to-earnings ratio might turn out to be fair.

In the end, I think the past decade says more about the price investors paid in 2021 than about the business. Back then, Adobe stock cost over 50 times adjusted earnings and needed almost everything to go right. Today it needs much less.

I'd consider buying Adobe stock today. But with AI's long-term impact on Adobe's customers still unknown, I'd start with a small position.