Adobe Systems Incorporated (ADBE): Are You Invested?

Nuance Communications Inc. (NASDAQ:NUAN), the voice and language software company, currently trades as one of the cheapest enterprise software players at only 11x forward earnings. Despite being a pioneer in voice recognition and the leader behind Apple’s Siri technology, the tech company is down 12% year to date. Even with its value orientated properties, we remain cautious given that Nuance has the highest debt ratio of any of its peers at 37% – more than twice that of Adobe. Billionaire Jim Simons was one of Nuance’s top new investors last quarter (check out Jim Simons’ other key picks).

salesforce.com, inc. (NYSE:CRM) is one of the fastest growing tech stocks around, and Ken Griffin’s Citadel Investment Group still loves the stock after increasing its stake by 750% last quarter (see Ken Griffin’s latest picks). Salesforce is up over 180% the last five years, whereas the S&P 500 has lost 3.7%. Salesforce does present investors with the best growth prospects of our five stocks listed here, as the sell-side expects it to grow EPS by 27% a year over the next half-decade. Even with such robust growth, we remain cautious due to its extraordinary forward P/E of 83x, coupled with the fact that insiders have been selling the company of late (see why here).

Citrix Systems, Inc. (NASDAQ:CTXS) boasts a relatively high EBITDA margin of 24% and has beat earnings each of the last four quarters, but it’s still relatively flat year to date on a stock price performance basis. Looking deeper, we see one counter argument for why Citrix may not performing better: the company’s growth potential is already factored into its stock price. Citrix trades at some of the highest forward earnings (21x) and sales (4.9x) multiples in its industry. Ray Dalio’s Bridgewater Associates has been a steady supporter of this company though, which is something to consider as well (check out all of Ray Dalio’s big bets).

Getting back to Adobe, its shares are trading at one of the lowest forward P/E ratios amongst its peers (15x), and the company itself has a leading position in terms of profitability. We believe that it’s a solid value play with over $3.5 billion in cash on hand, as it manages to generate over $1.5 billion annually in cash flow from operations. Although Adobe currently does not pay a dividend, it easily could establish a payout yielding 3%, which would only equal around $500 million in annual terms.