Adobe (NASDAQ:ADBE) is a digital media and marketing software maker that after releasing its earnings for the fourth quarter of fiscal year 2021 had several analysts revising their price targets, which is a typical scenario on Wall Street. My opinion on Adobe now can be described simply as as a great company with a very high-quality stock that is pricey. The only reason that I am mixed on ADBE stock is its valuation.

A few months ago, in the early summer I mentioned ADBE stock in my article on the best tech stocks to buy in the enterprise sector.

I noted then that I liked the sales growth, net income growth, the strong balance sheet, and the free cash flow. I considered that the active stock repurchase program through the end of fiscal 2021 was just another positive factor going for the stock. At the time of that article, ADBE’s stock price was $535.52. There was a rally until Nov. 22, 2021, reaching a 52-week high of $699.54 but as of Dec. 22, 2021, the stock lost about 20% falling to $560.94.

A quick note about this sell-off in Adobe. Should the stock fall furthermore I would consider it very attractive, as with its latest decline it still seems pricey. The key catalyst that will drive shares of Adobe now and into 2022 are its earnings, and revenue growth. The Q4 FY2021 earnings report was a strong one but also a mixed one.

Strong Revenue Growth and Record Performance in Q4

The good news first is that Adobe “achieved record revenue of $4.11 billion in its fourth quarter of the fiscal year 2021, which represents 20 percent year-over-year growth” and “Cash flows from operations were a record $2.05 billion.”

For the Q4 FY2021, all business segments reported sales growth. The revenue for Digital Media, Creative, and Document Cloud on a year-over-year basis was up 21%, 19%, and 29% respectively.

For the full fiscal year 2021, the company announced a record annual revenue of $15.79 billion, representing year-over-year growth of 23%. Another strong key metric reported was a record $7.23 billion in operating cash flows. Share buybacks were approximately 7.2 million shares during the year.

Even with all these very strong figures analysts’ responses were mixed and several of them revised their price targets of Adobe.

Are Analysts’ New ADBE Stock Price Targets Justified?

What are some of the notable Adobe stock price revisions now?

• Piper Sandler analyst Clarke Jeffries lowered the price target from $670 to $630 but kept an Overweight consensus
• Stifel analyst J. Parker Lane lowered their price target to $700 from $750
• JP Morgan downgraded the stock to a Neutral rating and a price target of $680

The key reason for analysts becoming more pessimistic was that Adobe’s FY2022 guidance missed some important estimates. “For fiscal 2022, Adobe forecast adjusted earnings of $13.70 per share on sales of $17.9 billion. Wall Street was targeting Adobe earnings of $14.26 a share on sales of $18.16 billion.”

Are these price targets revisions justified?

To a very large degree I would argue that yes, they are. Lower projected revenue and earnings per share (EPS) in most cases support a lower stock price.

However, I believe that there are a few missing points in these stock price revisions.

Factors That Favor a Strong Price Forecast for ADBE Stock

Adobe in its FY 2021 financial results exceeded all its original targets of key metrics set in late 2020. This is a remarkable milestone. It justifies my previous comment about a stock with very high-qualitative features.

These key metrics are total revenue, EPS, Digital Media’s annualized recurring revenue (ARR), and business segments revenue.

It may well be the case that the firm is applying a conservative approach to its estimates. Any positive surprises most probably will be supportive of the stock price.

Adobe estimates that TAM (Total Addressable Market) by the year 2024 may reach $205 billion. I like the business model powering digital businesses and see a lot of market opportunities. Another round of share buybacks in 2022 could also prove to be beneficial for the stock.

Turning to valuation data from Simply Wall Street shows that ADBE stock is trading at a premium based on its PE Ratio (56.02x) compared to the US market (16.8x) and is pricey based on its PEG Ratio (2x).

Where This Leaves ADBE Stock

I like a lot the fundamentals of Adobe, but the truth is its stock price, which is up now about 11.8% for the year, is just too expensive.

The next year could be very challenging for high-growth stocks. A tighter monetary policy set by the Federal Reserve will likely put high-growth stocks under more pressure. There is, however, a vital factor that makes Adobe different from high-growth stocks.

Not all these stocks are profitable or have high-quality fundamentals. 2022 will likely see higher monetary and capital costs, and Adobe offers a safety net with its excellent 2021 performance. While the stock is expensive, a potential sell-off could make this software maker very attractive.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.