Today's Momo Momentum Stock To Watch: Adobe Systems (ADBE)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Adobe Systems ( ADBE) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Adobe Systems as such a stock due to the following factors:

  • ADBE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $150.2 million.
  • ADBE has a PE ratio of 124.
  • ADBE is currently in the upper 30% of its 1-year range.
  • ADBE is in the upper 25% of its 20-day range.
  • ADBE is in the upper 35% of its 5-day range.
  • ADBE is currently trading above yesterday's high.
  • ADBE has experienced a gap between today's open and yesterday's close of 0.7%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on ADBE:

Adobe Systems Incorporated operates as a diversified software company worldwide. It operates in three segments: Digital Media, Digital Marketing, and Print and Publishing. ADBE has a PE ratio of 124. Currently there are 6 analysts that rate Adobe Systems a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Adobe Systems has been 2.3 million shares per day over the past 30 days. Adobe Systems has a market cap of $38.3 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.32 and a short float of 0.9% with 2.25 days to cover. Shares are up 5.3% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Adobe Systems as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income, solid stock price performance and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although ADBE's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average. To add to this, ADBE has a quick ratio of 2.07, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 80.4% when compared to the same quarter one year prior, rising from $47.05 million to $84.89 million.
  • Powered by its strong earnings growth of 88.88% and other important driving factors, this stock has surged by 27.46% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • ADOBE SYSTEMS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ADOBE SYSTEMS INC reported lower earnings of $0.52 versus $0.57 in the prior year. This year, the market expects an improvement in earnings ($2.09 versus $0.52).

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