I know I have mentioned this several times over the past year, but I consider the business and stock performance of Adobe Systems, Inc. (ADBE) over the past decade to be one of the most instructive business case studies over the past decade. There is so much to learn about how a software company with solid 10-14% annual growth transformed itself to “Berkshire Hathaway in its early days” type of growth with its 23% annual earnings per share growth over the past six years as it has transitioned aware from a permanent licensing to a monthly subscription-based model for generating revenue.
For investors who correctly identified this trend and purchased shares accordingly, the results have been significant, with $1 of investment growing into between $11 and $20 each depending upon the specific entry point of the investment during the past decade or so time frame.
As a result, I have continued to be on the hunt for smaller companies that are in the early stages of making the Adobe transition. In particular, I focus on companies with “mission critical” software that is transitioning to a monthly subscription model as those types of software companies are most likely to encounter the lowest attrition when switching from one-time to monthly invoices.
I have found a software company that has turned $1 invested in it in 2003 into over $20 today that is in the process of switching to a subscription-based SaaS business model and is currently trading at what I consider a fair price–i.e. not those nose-bleed 50x earnings valuations. Please click here and join me on Patreon in order to access my analysis. Thank you.