Our recommendations for three types of readers

For Potential Equity Investors: Hold

For Potential Shot-Term Lenders: Buy

For Potential Fixed-Assets Investors: Buy

Profitability

Adobe has experienced continuous revenue growth for the past eleven years, with excellent record of profitability. Gross margin has been stayed at 28% to 40% level, while net margin has been in the range from 12% to more than 20%. Return on assets (ROA) is stable (8% to more than 20%, except in 1994), and return on equity (ROE) stays at 13% to more than 20% (except 1994).

Financial Strength

Adobe is a financially strong company. Most of the financial ratios are favorable for different types of investors. Its current ratio is always above 2, and basically it has no long-term debt. Stockholders equity increased from $5 million in 1985 to around $700 million in 1995.

Recent Efforts

Adobe's PostScript computer language made desktop publishing a reality in mid-1980s. Currently, Adobe plans to ride its Internet software toward success in the near future. It grew in the early 1990s by acquiring other software companies. In 1995 it announced a deal with Netscape to integrate Acrobat's viewing technology into Netscape's Internet software (including the Navigator browser). It forecasts that the sales of its products for the Internet will grow at a rate of 100% per year, and it will focus on business-to-business sites. This provides a good opportunity for investors.

Comparison with the Software Industry

Adobe is the third largest software company in the US in terms of market share. However, its financial performance has been unstable compared with the high-growth industry.From 1991 to 1994, its net income fluctuated between $57 million and $6 million.

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