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Buy Cloud Stock DocuSign Down 25% Heading Into Earnings?

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DocuSign (DOCU - Free Report) enables companies to sign contracts and documents electronically from nearly any device. This helped make DOCU a star of the early coronavirus comeback.

But the stock has underperformed over the last six months and it has tumbled 25% from its February highs amid the massive wave of tech selling, heading into the release of its fourth quarter fiscal 2021 financial results on March 11.

The Basics

DocuSign operates a straight forward business in a tech and cloud sector full of vague or esoteric endeavors. The firm enables businesses and organizations to sign contracts and documents electronically on “practically any device, from almost anywhere, at any time.”

On top of that, DOCU’s Agreement Cloud helps firms “automate and connect” their “entire agreement process.” The cloud-based suite offers over a dozen apps for e-signature, document generation, contract lifecycle management, and more. DocuSign also sells industry and department-specific solutions.

DOCU’s offerings are increasingly valuable in our digital-focused world. At a time when banking is done online, hospital records are stored electronically, and mortgages documents are signed digitally, DocuSign appears increasingly valuable. DocuSign’s cloud suite has hundreds of pre-built integrations with other applications, including the likes of Microsoft (MSFT - Free Report) , Google (GOOGL - Free Report) , and Salesforce (CRM - Free Report) .

Other Fundamentals

DOCU went public in 2018 and it had climbed from around $40 a share to roughly $90 before the pandemic selloff. Its shares then soared from roughly $80 in March of 2020 to $200 a share by July. But the stock began to cool off, down 8% in the last 6 months to lag the S&P 500, while also experiencing come wild swings

More recently, DocuSign stock has plummeted 25% from its Feb. 19 records amid the tech selloff to under $200 a share. The decline roughly matches that of Tesla (TSLA - Free Report) , Shopify (SHOP - Free Report) , Zoom Video (ZM - Free Report) , and other pandemic success stories.

The recent selloff has pushed DocuSign to oversold levels in terms of RSI at 29, down from 65 in mid-February—anything above 70 is considered overbought and anything below 30 is thought of as oversold. The downturn also has DOCU trading at a 15% discount to its own year-long highs in terms of forward sales at 20X. This marks a huge discount to fellow high-flyers such as ZM’s 27X and SHOP’s 34X.

Looking ahead, Zacks estimates call for DocuSign’s FY21 sales to climb 47% to $1.4 billion, with FY22 set to climb 31% higher. These projections would mark four-straight years of over 30% top-line growth for DOCU.

Meanwhile, its adjusted earnings are projected to surge 139% and 46%, respectively over this stretch. And its overall earnings outlook has remained relatively stagnant recently.

Bottom Line

DocuSign’s business model was built for the pandemic and, more importantly, the digital business world. The company’s long-term fundamentals appear strong.

Still, it might be best to wait and see how Wall Street reacts to beaten-down tech stocks when it reports its Q4 results on March 11, before possibly diving in. That said, dollar-cost averaging into a stock that’s down 25% in the blink of an eye might not be the worst idea.

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