Based in California, Adobe (ADBE) provides a variety of software products, including ones focused on publishing, visual media, and advertising. I am bullish on the stock.

If you’re old enough to remember the early days of the Internet, then you may recall that Adobe’s most well-known product was Acrobat, which allowed people to read PDFs or portable document files. Meanwhile, graphic illustrators often used Photoshop as their go-to program to create and edit digital images.

Adobe has expanded its product and service offerings since then and is now among the biggest and most famous software companies in the U.S. At the same time, Adobe stock is out of favor among investors, and, as we’ll see, at least two Wall Street analysts have slashed their price targets on the stock.

Yet, contrarian investors might see a buying opportunity here amid the negative sentiment. One thing is undeniable: Adobe’s innovative spirit is intact as the company continues to develop a wide variety of products in the areas of data analytics, the metaverse, and more.

Getting Ready for Earnings

After topping out at nearly $700 last year, Adobe stock recently tumbled below $400. This isn’t likely due to anything bad happening with Adobe in particular. Rather, it appears that Adobe stock is suffering from collateral damage as investors generally rotate out of software stocks, which were high flyers after the onset of the COVID-19 crisis in 2020.

Perhaps Adobe stock was overheated at $700, so it’s not necessarily a bad thing that the share price came down. Adobe’s trailing 12-month P/E ratio is 36.8, indicating a fairly reasonable valuation for a giant tech company in the 2020s.

Both Adobe’s share price and P/E ratio could change dramatically on June 16 after the market closes, as that’s when the company is set to announce its second-quarter Fiscal 2022 results. Adobe anticipates total quarterly revenue of $4.34 billion and non-GAAP earnings of $3.30 per share, and analysts generally have the same expectations.

EPS of $3.30 per share isn’t asking for too much when the stock price is above $300, so it’s fair to say that Adobe could deliver a positive earnings surprise. Investors can prepare for this possibility by holding a few Adobe stock shares, but don’t go overboard, as it’s hard to predict how the market will react to the data.

Interestingly, some analysts have revised their outlooks on Adobe stock to the downside. For example, Citigroup (C) analyst Tyler Radke cut his price target on Adobe from $455 to $425. Also, RBC (RY) Capital Markets analyst Matthew Swanson slashed his Adobe stock price target from $600 to $500. Among Swanson’s concerns are Adobe’s “durability of customer spend and the resiliency, particularly of digital media, in an uneven environment.”

Those are fair points, and hopefully, Adobe’s data will show improvement in those areas. Besides, the $425 and $500 price targets still imply solid upside potential from Adobe’s current share price.

Getting Metaverse-Ready

Price targets are important, but let’s not lose sight of what made Adobe a software superstar in the first place: a powerful product line. Even today, Adobe continues to develop products that push the boundaries of what’s possible in the software market.

For example, the company just added new services to Adobe Analytics, including support for metaverse analytics. “In the metaverse,” Adobe explains, “brands will be able to measure and analyze specific events, such as the volume of engagement with 3D objects and immersive experiences, as well as collecting interactions across multiple metaverses.”

The brands can then take the collected data and combine them with “insights across other channels like the website or mobile app, to understand changing consumer preferences.” Thus, if the build-out of the metaverse requires more robust data collection and deployment, Adobe Analytics could become the go-to software for today’s metaverse-enabled brands.

Also in the metaverse, Adobe is forging a new path with major updates to Adobe Substance 3D, a software suite for 3D content creation. The updates include new plugins as well as a 3D Materials SDK for developers.

Scott Belsky, chief product officer and executive vice president of Adobe Creative Cloud, observed that “Smart brands are getting metaverse-ready by growing their 3D and immersive content creation capabilities.” Adobe’s innovations, thus, can “provide new superpowers to the rapidly growing number of creative people using Substance 3D.”

Wall Street’s Take

Turning to Wall Street, ADBE stock comes in as a Strong Buy based on 21 Buys and five Hold ratings. The average Adobe price target is $549.04, implying 48.1% upside potential.

The Takeaway

Adobe has come a long way since the early days of the Internet. Moving beyond Acrobat and Photoshop, the company is now advancing products that can facilitate the build-out of the metaverse in the 2020s.

Investors can choose to hold Adobe stock before earnings if they’re expecting a positive surprise. Alternatively, they can wait until the earnings event has passed and see how the market reacts to the data. Either way, it’s likely not a bad idea to take a position in Adobe, a diversified and forward-looking leader in the software market.

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