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Buy This Tech Stock Down 70% for Long-Term Growth?
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DocuSign’s (DOCU - Free Report) cloud software suite includes e-signatures and other agreement automation offerings. The company has grown at a rather impressive rate in our digital-dominated world.
DocuSign shares got super overheated alongside many other pandemic high-flyers and its growth outlook has cooled off after several covid-boosted years. DOCU still, however, operates a business built for the economy of today and tomorrow.
Everything Is Digital
DocuSign’s cloud-based suite offers over a dozen apps for e-signature, document generation, contract lifecycle management, and more. DocuSign sells industry and department-specific solutions, and it has tons of pre-built integrations with the likes of Salesforce (CRM - Free Report) and other huge technology players.
At a time when banking is done online, hospital records are stored electronically, and mortgage documents are signed digitally, DocuSign appears increasingly valuable. DOCU grew its revenue by an average of 42% since going public, including 45% sales growth last year (its FY22).
DOCU’S adjusted earnings soared 120% in FY22 to $1.98 per share. But the company’s growth outlook, particularly on the bottom line, is slowing after a few covid-boosted years.
Zacks estimates call for DocuSign’s revenue to climb 18% in its FY23 to reach $2.5 billion and then pop 19% higher next year to $3 billion. Its adjusted EPS is expected to come in flat YoY, which has scared Wall Street, before climbing 24% next year.
DocuSign lands a Zacks Rank #3 (Hold) right now and it had consistently crushed our quarterly EPS estimates until it matched our consensus in Q4. And DOCU grabs a “B” grade for Growth in our Style Scores system.
Image Source: Zacks Investment Research
What Else
DocuSign stock is up roughly 120% since its 2018 IPO, but it has already seen two years’ worth of gains washed away. DOCU has tumbled over 70% from its September records of $315 a share to around $87 per share at the moment to trade around where it was in the early months of 2020.
DOCU trades at 42X forward earnings, with a PEG ratio of 2.6, both of which are far more reasonable compared to its highs and somewhat in line with the likes of Salesforce. Yet DocuSign might still be too richly valued for many investors even after its pullback and recalibration.
Along with valuation concerns, DocuSign’s balance sheet isn’t particularly strong, especially for a cloud software firm. It closed last year with $1.32 billion in current assets and $2.54 billion in total assets, against $1.37 billion in current liabilities and $2.27 billion in total liabilities.
Bottom Line
DocuSign still operates a strong business that is poised to continue gaining momentum in a world where nearly every document is signed, or at least stored digitally. And just because people are returning to the office doesn’t mean any more paper will be used.
That said, DOCU’s Technology Services industry is in the bottom third of over 250 Zacks industries. And given all of the market turmoil and large single-day moves by even the biggest names on Wall Street, potential investors might want to wait for DocuSign to release its Q1 FY23 results on June 9 before considering it again.
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Buy This Tech Stock Down 70% for Long-Term Growth?
DocuSign’s (DOCU - Free Report) cloud software suite includes e-signatures and other agreement automation offerings. The company has grown at a rather impressive rate in our digital-dominated world.
DocuSign shares got super overheated alongside many other pandemic high-flyers and its growth outlook has cooled off after several covid-boosted years. DOCU still, however, operates a business built for the economy of today and tomorrow.
Everything Is Digital
DocuSign’s cloud-based suite offers over a dozen apps for e-signature, document generation, contract lifecycle management, and more. DocuSign sells industry and department-specific solutions, and it has tons of pre-built integrations with the likes of Salesforce (CRM - Free Report) and other huge technology players.
At a time when banking is done online, hospital records are stored electronically, and mortgage documents are signed digitally, DocuSign appears increasingly valuable. DOCU grew its revenue by an average of 42% since going public, including 45% sales growth last year (its FY22).
DOCU’S adjusted earnings soared 120% in FY22 to $1.98 per share. But the company’s growth outlook, particularly on the bottom line, is slowing after a few covid-boosted years.
Zacks estimates call for DocuSign’s revenue to climb 18% in its FY23 to reach $2.5 billion and then pop 19% higher next year to $3 billion. Its adjusted EPS is expected to come in flat YoY, which has scared Wall Street, before climbing 24% next year.
DocuSign lands a Zacks Rank #3 (Hold) right now and it had consistently crushed our quarterly EPS estimates until it matched our consensus in Q4. And DOCU grabs a “B” grade for Growth in our Style Scores system.
Image Source: Zacks Investment Research
What Else
DocuSign stock is up roughly 120% since its 2018 IPO, but it has already seen two years’ worth of gains washed away. DOCU has tumbled over 70% from its September records of $315 a share to around $87 per share at the moment to trade around where it was in the early months of 2020.
DOCU trades at 42X forward earnings, with a PEG ratio of 2.6, both of which are far more reasonable compared to its highs and somewhat in line with the likes of Salesforce. Yet DocuSign might still be too richly valued for many investors even after its pullback and recalibration.
Along with valuation concerns, DocuSign’s balance sheet isn’t particularly strong, especially for a cloud software firm. It closed last year with $1.32 billion in current assets and $2.54 billion in total assets, against $1.37 billion in current liabilities and $2.27 billion in total liabilities.
Bottom Line
DocuSign still operates a strong business that is poised to continue gaining momentum in a world where nearly every document is signed, or at least stored digitally. And just because people are returning to the office doesn’t mean any more paper will be used.
That said, DOCU’s Technology Services industry is in the bottom third of over 250 Zacks industries. And given all of the market turmoil and large single-day moves by even the biggest names on Wall Street, potential investors might want to wait for DocuSign to release its Q1 FY23 results on June 9 before considering it again.