Adobe Inc.
Mr. Market is asking $254.02 for the business today.
The business is worth approximately $715.58.
That is a Δ of +181.7% from price to fair value. Mr. Market is offering ADBE below our 25% margin of safety. Worth a closer look.
Subscribe to read the full reckoning on ADBE.
Mr. Market is asking $254.02. We say it's worth $715.58. The full eight-step audit follows for subscribers.
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The Reckoning
Eight steps. Every input is visible. Every formula is on the page. The same protocol is applied to every stock — consistency is most of the discipline.
Data validation
Garbage in, garbage out. Before any math runs, we confirm we have what the protocol requires.
| Operating Cash Flow > 0 | ✓ |
| Depreciation & Amortization exists | ✓ |
| Diluted shares outstanding > 0 | ✓ |
| At least 3 forward EPS estimates (we have 10) | ✓ |
Owner Earnings = OCF − D&A
From Buffett's 1986 Berkshire annual letter. Owner Earnings is the cash a business produces after spending what is necessary to maintain its current productive capacity. We use depreciation & amortization as the proxy for that maintenance reinvestment — “vaguely right rather than precisely wrong.”
| Operating Cash Flow (latest annual) | $10.03B |
| Depreciation & Amortization | $818.0M |
| Fiscal period end | Owner Earnings | Note |
|---|---|---|
| 2025-11-28 | $9.21B | |
| 2024-11-29 | $7.16B | ← median (used as headline OE) |
| 2023-12-01 | $6.43B |
Spec (Stage 1) smooths Owner Earnings via the median of the last three annual filings. The median trims outliers symmetrically — a single bad year or a single working-capital swing no longer dominates. If the median itself comes out non-positive, that flows through to the IV honestly (no rescue to a best-positive year).
| Owner Earnings (smoothed, headline) | $7.16B |
Growth — analyst consensus, capped, then faded to GDP
G1 is the simple average of the year-over-year EPS growth rates we can compute from the available forward analyst consensus — up to five years out from the latest actual, fewer when fewer estimates are on file — capped at 20% and floored at 0%. G2 is forecasted U.S. real GDP growth — no business compounds faster than the overall economy forever. Between them, growth fades linearly.
| From → To | EPS | → EPS | YoY growth |
|---|---|---|---|
| 2025 → 2026 | 16.70 | 24.45 | +46.4% |
| 2026 → 2027 | 24.45 | 27.60 | +12.9% |
| 2027 → 2028 | 27.60 | 31.55 | +14.3% |
| 2028 → 2029 | 31.55 | 34.77 | +10.2% |
| 2029 → 2030 | 34.77 | 34.84 | +0.2% |
| G1 mean (5-yr available forward chain) | 16.8% |
| G1 median (sanity check) | 12.9% |
| G1 cap / floor | 0% / 20% |
| G1 (clipped) | 16.8% |
| G2 (forecasted U.S. real GDP) | 2.3% |
Projected Owner Earnings, years 1–11
Apply the linear-fade growth schedule to Owner Earnings. Year 11 exists only as the input to the terminal value formula in step V — it is not summed.
| Year | Growth applied | Projected OE | Discount factor | Present value |
|---|---|---|---|---|
| +1 | 16.80% | $8.37B | 0.935 | $7.82B |
| +2 | 15.35% | $9.65B | 0.874 | $8.44B |
| +3 | 13.90% | $10.99B | 0.817 | $8.98B |
| +4 | 12.44% | $12.36B | 0.764 | $9.45B |
| +5 | 10.99% | $13.72B | 0.715 | $9.80B |
| +6 | 9.54% | $15.02B | 0.668 | $10.04B |
| +7 | 8.09% | $16.24B | 0.625 | $10.15B |
| +8 | 6.63% | $17.32B | 0.584 | $10.12B |
| +9 | 5.18% | $18.21B | 0.546 | $9.95B |
| +10 | 3.73% | $18.89B | 0.511 | $9.65B |
| +11 (TV input) | 2.28% | $19.32B | 0.478 | — |
Discount rate — 10-year Treasury
The discount rate is the required rate of return — the minimum we demand to justify owning this business instead of a risk-free Treasury bond. Buffett anchors here for a reason: if a stock can't generate returns above the risk-free rate after accounting for its uncertainty, it is not an attractive investment.
| 10-year U.S. Treasury yield | 4.95% |
| Risk premium added | 2.00% |
| Discount rate (r) | 6.95% |
10Y Treasury 4.95% + Technology / communication services — +2pp risk premium to dampen the high-growth × low-rate compounding effect.
Terminal value — perpetuity beyond year 10
No business stops generating cash after a decade. The terminal value captures the value of all cash flows from year 11 forward, modeled as a perpetuity growing at G2. This is typically the largest single component of intrinsic value.
| Year 11 Owner Earnings | $19.32B |
| g₂ used (with r − 0.5pp guard) | 2.3% |
| Future value of terminal = Y11 OE / (r − g₂) | $413.44B |
| Discount factor at year 10 | 1 / (1 + r)¹⁰ = 0.511 |
| Present value of terminal | $211.16B |
Intrinsic value per share
Sum the present value of all projected Owner Earnings (years 1–10) plus the present value of the terminal value. Divide by fully diluted shares outstanding.
| PV sum, years 1–10 | $94.39B |
| PV of terminal value | $211.16B |
| Total intrinsic value | $305.55B |
| Shares used (diluted weighted-average) | $427.0M |
| Intrinsic value per share | $715.58 |
Margin of safety
Intrinsic value is an estimate, not a fact. The margin of safety is the buffer that protects against being wrong. Default 25%; raise it for lower-quality businesses or higher-uncertainty situations.
| Intrinsic value per share | $715.58 |
| Margin of safety (rate) | 25% |
| Buy price (IV × (1 − MoS)) | $536.68 |
ADBE — Adobe Inc.
| Symbol | ADBE |
| Mr. Market’s asking price | $254.02 |
| Intrinsic value (with 25% MoS) | $536.68 |
| Δ% vs current price | +181.7% |
| Operating Cash Flow (latest annual) | $10.03B |
| G1 / G2 | 16.8% / 2.3% |
| Mr. Market’s mood | DEPRESSED |
| Final verdict | OFFERED BELOW VALUE |
Mr. Market DiagnosticsBuffett-style screens (not in canonical protocol)Two supplementary checks we keep around but do not use to drive the BUY signal: an 8-dimension business-durability screen, and Buffett's 2010 Two-Column cross-check. Click to expand.
[ Expand ]
Two supplementary checks we keep around but do not use to drive the BUY signal: an 8-dimension business-durability screen, and Buffett's 2010 Two-Column cross-check. Click to expand.
Score: 100 / 100
| Check | Threshold | Observed | Verdict |
|---|---|---|---|
| ≥5 years of financial history (free-tier window) | >= 5 | 10 | ✓ |
| Positive net income every year of last 5 | 5 / 5 | 5 / 5 | ✓ |
| FCF (CFO − CapEx) positive in all of last 5 years | 5 / 5 | 5 / 5 | ✓ |
| Operating-margin coefficient of variation ≤ 0.15 | ≤ 0.15 | 0.06 | ✓ |
| EPS predictability R² ≥ 0.80 (5-yr trend fit) | >= 0.80 | 0.82 | ✓ |
Implied IV: $244.54
| Column A (cash + securities − debt) per share | -$0.12 |
| Sector multiple used | 12× pre-tax operating income |
| Column B (operating EPS × multiple) | $244.67 |
| Two-Column IV per share | $244.54 |
The Sources
Every number above traces back to a specific external source. Company fundamentals (cash flow, income statement, balance sheet) come from the company's own SEC filings, fetched through Financial Modeling Prep's normalized GAAP schema. The 10-year and 30-year U.S. Treasury yields come from FMP's daily Treasury constant-maturity series. Analyst-consensus EPS estimates come from FMP. The terminal growth rate G2 is computed from the Federal Reserve's FRED real-GDP series (GDPC1), trailing-4-quarter YoY-YoY, with a Supabase-backed last-known-good fallback if FRED is temporarily unreachable. The raw inputs follow.
Cash flow (most recent)
| Net income | $7.13B |
| Operating cash flow | $10.03B |
| Depreciation & amortization | $818.0M |
| Stock-based comp | $1.94B |
| Capital expenditure | -$179.0M |
| Free cash flow | $9.85B |
| Filing date | 2026-01-15 |
Forward analyst EPS estimates
| Year | EPS Avg | Low | High | Analysts |
|---|---|---|---|---|
| 2021 | 12.47 | 12.14 | 12.87 | 9 |
| 2022 | 13.63 | 13.26 | 14.05 | 10 |
| 2023 | 15.93 | 15.90 | 15.95 | 21 |
| 2024 | 18.27 | 18.23 | 18.29 | 25 |
| 2025 | 20.82 | 19.95 | 20.93 | 26 |
| 2026 | 24.45 | 24.41 | 24.49 | 17 |
| 2027 | 27.60 | 26.29 | 28.58 | 23 |
| 2028 | 31.55 | 28.61 | 36.38 | 11 |
| 2029 | 34.77 | 33.97 | 35.80 | 9 |
| 2030 | 34.84 | 34.04 | 35.87 | 4 |