Despite yesterday’s 4% drop in ADBE’s stock price, the stock remains roughly 45% above its March low. Our research suggests this stock has a lot more room to run over the next several months.

Dating back to the late 1990s, ADBE’s stock (adjusted for dividends and splits) has been correlated with the 12-month rate-of-change of software pricing power (note: we show consumer pricing power as a proxy for overall software prices, i.e. business and consumer products). However, since last September ADBE’s stock price has diverged from overall software prices, a trend that we expect will reverse in coming quarters given the firm’s decent business prospects.

Software prices should stay resilient, especially relative to overall prices. The main reason for this resilience is that businesses typically do not cut software spending as much as other expenses during recessions given software improves productivity which will help maintain a lid on costs.

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