Is Adobe, Inc. overvalued or undervalued?

As of 31 January 2025, Adobe, Inc. has moved from a fair to attractive valuation grade, indicating a positive shift in its market perception. The company is currently considered undervalued, with a P/E ratio of 35, a Price to Book Value of 18.41, and an EV to EBITDA of 26.66. These ratios suggest that while the company is trading at a premium compared to its earnings, its strong return on equity (ROE) of 52.06% and return on capital employed (ROCE) of 67.92% highlight its operational efficiency and profitability.
In comparison to peers, Adobe's P/E ratio of 31.91 is lower than Microsoft Corp.'s 36.58 and Oracle Corp.'s 45.21, suggesting that it may offer better value relative to its earnings potential. Additionally, Adobe's PEG ratio of 1.18 indicates that its growth prospects are reasonably priced compared to its earnings growth. Despite recent underperformance against the S&P 500, with a year-to-date return of -14.52% compared to the index's 2.44%, the valuation metrics support the conclusion that Adobe is currently undervalued in the market.