In just three months, shares of Adobe (NASDAQ:ADBE) have crashed 34%. While the S&P 500 hasn’t been doing that great either, its decline is more modest at just 7%.
The sell-off in Adobe’s stock has been so significant that it is now in oversold territory, with a Relative Streng Index (RSI) of 28. RSI tracks a stock’s price typically over the past 14 trading days and when there’s an excess of selling, the RSI number falls, and the lower it goes. Once it gets below 30, it is said to be oversold, which is where Adobe’s stock is now.
The problem started back in December 2021 when the company released its year-end earnings numbers. The stock had its second-worst day of the decade, falling more than 10% after the company’s guidance underwhelmed investors and analysts. For the new fiscal year, the company projects that its top line will come in at around $17.9 billion versus the $18.16 billion analysts were expecting.
At $17.9 billion, that will amount to just a 13% growth rate from the $15.79 billion that Adobe posted in fiscal 2021 – the growth rate for the past year was 23%.
For a stock that was trading at a hefty price-to-earning premium of more than 60, expectations were high for Adobe, and, unfortunately, it fell short of them. Even now, with the stock trading at more than 40 times its trailing earnings, that can still be a bit steep premium for a company that’s growing at less than 15% per year.
Adobe’s business is still solid, but for investors looking to buy it, they may be better off waiting as the sell-off may not be over just yet.