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Adobe hacked. Wall Street doesn't care.

November 12, 2013: 12:38 PM ET
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Software firm Adobe recently reported a significant breach of its users' information. But the stock is at an all-time high.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Adobe, the software company most famous for Photoshop and PDF converter Acrobat, has been in the news a lot lately ... for all the wrong reasons.

The company disclosed last month that hackers were able to access personal information from 2.9 million customers -- including encrypted credit card numbers. Adobe (ADBE) later amended that statement, saying in late October that the actual number of accounts impacted by the data breach was 38 million.

Adobe is standing by that figure, but several tech blogs have reported that the actual number of accounts affected may be as large as 150 million. Regardless of what the final tally is, any number in the millions is staggeringly high.

Related: Adobe has an epically abysmal security record

So you would think that investors in Adobe might be worried about how this security hole could impact sales and profits for the company.

But they aren't. Wall Street's acting like Charles Dickens' Oliver Twist. Please sir, I want some more stock. Shares of Adobe are up nearly 50% this year and are trading at an all-time high.

Are investors doing what they do best ... i.e. glibly ignoring a huge potential problem? Perhaps. But the simple fact of the matter is that unless there is real evidence that hackers are able to take what they got from Adobe and wreak actual havoc with it, investors are probably correct not to worry.

Adobe has been an amazing success story thanks to its strong growth in cloud-based software. The company recognized the threat from the cloud and adapted its business model accordingly.

Cloud is one of the biggest buzzwords in tech. Salesforce.com (CRM), the biggest player in cloud-based sales, marketing and customer management software, is also trading at an all-time high.

Adobe's shift to the cloud is a big reason why analysts expect the company to report an earnings increase of 19% in fiscal 2014, and an average 12% rise annually for the next five years.

"Adobe has completely changed to a subscription service as opposed to a shrink-wrapped box of software off the shelf model," said Norman Young, an analyst with Morningstar. "The data concerns are disturbing if you are a customer but they are not troubling enough to derail the optimism behind the stock."

Related: How Corporate America fights hackers

Adobe has had to endure worse in its corporate history than the recent security snafu. The stock tanked after the tech bubble burst in 2000 and plummeted once again during the 2008 financial crisis.

Throughout much of its life as a public company, Adobe has had to keep a wary eye on Microsoft (MSFT), which has tried (mostly unsuccessfully) to steal market share from Adobe's suite of creative software, which also includes Illustrator, InDesign and Dreamweaver.

More recently, Adobe had to endure a blistering critique of its Flash media player by the late Steve Jobs. Interestingly, there had even been some rumors a few years that Adobe may have been willing to sell out to Microsoft in order for both companies to be more competitive against Apple (AAPL).

Related: Porn-viewing bosses infect corporate networks

But Young said investors love the new cloud-focused Adobe. Still, that raises a security issue that investors may not be thinking too much about.

Young said the biggest risk to Adobe is not that hackers steal passwords and encrypted account numbers. It's that hackers actually start messing with the work that people are doing on Adobe's software platforms.

"If projects that are stored on the cloud are actually compromised, then consumers and investors may lose confidence in Adobe," he said.

Barring that, Adobe's main problem as a stock is one that many companies face in this roaring bull market: Valuation. Shares of Adobe trade at a whopping 35 times fiscal 2014 earnings estimates.

Several of Adobe's rivals, including Nuance (NUAN) and Autodesk (ADSK), are trading at much lower valuations.

Nuance, which makes a PDF converter that competes with Acrobat but isn't a pure play graphic software firm, is trading at only 11 times fiscal 2014 earnings estimates. Nuance, which also develops the speech recognition software that powers Apple's Siri feature, recently resolved a battle with activist shareholder Carl Icahn.

And Autodesk, which is in the early stages of transitioning to a cloud-based subscription model, trades at 26 times earnings estimates for its next fiscal year. That isn't cheap. But it's cheaper than Adobe.

"Adobe is a fantastic company. But it's priced to perfection," Young said.

Now investors just have to hope that the security glitches don't get worse. If sales growth starts to slow because of worries about hackers, then Adobe's shares could tumble hard. Investors in momentum stocks can be unforgiving.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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