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Here's Why Investors Should Hold Docusign in Their Portfolios Now
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Key Takeaways
DOCU's FY27 revenues are projected to rise 8.5%, with EPS growing 18.2%.
Subscriptions generate 97% of Docusign's top line, supporting recurring revenues and cash-flow visibility.
Microsoft and Salesforce partnerships expand DOCU's reach, while weak liquidity and competition pose risks.
Docusign, Inc. (DOCU - Free Report) shares havegained 7.4% over the past three months compared with the industry’s 7.8% growth and the Zacks S&P 500 Composite's 9.4% rise.
3-Month Share Price Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2027 revenues is $3.5 billion, hinting at 8.5% year-over-year growth. The same is expected to move up 7.9% in fiscal 2028. For EPS, the consensus mark for fiscal 2027 and 2028 is pinned at $4.54 and $5.13, suggesting year-over-year growth of 18.2% and 12.9%, respectively.
Factors That Augur Well for DOCU’s Success
eSignature Market Expansion: Per Mordor Intelligence, the global eSignature market is expected to see a CAGR of 27.7% through 2031. The company holds on to a significant chunk of the market pie as it primarily competes with Adobe Acrobat Sign. It provides ample opportunity for the company to expand its eSignature business globally.
Subscription Fees Account Majority of Top Line: DOCU has generated 97% of its top line from subscription fees on average over the past three years. This model creates a recurring revenue stream for the company, accompanied by higher visibility in its cash flows.
Banking on its subscription model, DOCU can offer its software services at a cheaper rate that makes it accessible to clients, thus expanding its market. Multiple customer programs and initiatives led to customers increasing subscription revenue growth over time.
Strong Relationships With Tech-Giants: Docusign deepened its relationship with Salesforce and Microsoft. The company expanded its partnership with Salesforce in developing solutions for automation of the contract creation process and prolonged its collaboration among organizations that use Salesforce’s Slack.
DOCU integrated eSignature with Microsoft Teams, and it acts as the official electronic signature provider in Microsoft Teams’ Approval app. DOCU leverages these collaborations to sell into a higher number of accounts.
Risks Faced by Docusign
Weak Liquidity: DOCU’s current ratio at the end of the first quarter of fiscal 2027 stood at 0.66, declining from the year-ago quarter’s 0.79. A current ratio of less than 1 does not bode well with investors as it highlights the company’s inability to cover short-term obligations.
Competitive Pressure Threatens Pricing: New and existing competitors introduce products or reduce prices. In those instances, the company might have to deal with the inability to win customers or retain the ones that exist. Demand for price discounts can rise as mid to large-sized companies renegotiate contracts. Hence, competitive pressure can affect DOCU’s pricing structure.
Lack of Dividend: DOCU does not have any plan to pay out cash dividends. Hence, the only way to achieve a return is share price appreciation, which is not guaranteed. Income-seeking investors will find it unappealing to buy DOCU shares on the grounds of non-payment of dividends.
DOCU’s Zacks Rank & Stocks to Consider
The company has a Zacks Rank #3 (Hold) at present.
View the Zacks #1 Rank List
Image: Bigstock
Here's Why Investors Should Hold Docusign in Their Portfolios Now
Key Takeaways
Docusign, Inc. (DOCU - Free Report) shares havegained 7.4% over the past three months compared with the industry’s 7.8% growth and the Zacks S&P 500 Composite's 9.4% rise.
3-Month Share Price Performance
The Zacks Consensus Estimate for fiscal 2027 revenues is $3.5 billion, hinting at 8.5% year-over-year growth. The same is expected to move up 7.9% in fiscal 2028. For EPS, the consensus mark for fiscal 2027 and 2028 is pinned at $4.54 and $5.13, suggesting year-over-year growth of 18.2% and 12.9%, respectively.
Factors That Augur Well for DOCU’s Success
eSignature Market Expansion: Per Mordor Intelligence, the global eSignature market is expected to see a CAGR of 27.7% through 2031. The company holds on to a significant chunk of the market pie as it primarily competes with Adobe Acrobat Sign. It provides ample opportunity for the company to expand its eSignature business globally.
Subscription Fees Account Majority of Top Line: DOCU has generated 97% of its top line from subscription fees on average over the past three years. This model creates a recurring revenue stream for the company, accompanied by higher visibility in its cash flows.
Banking on its subscription model, DOCU can offer its software services at a cheaper rate that makes it accessible to clients, thus expanding its market. Multiple customer programs and initiatives led to customers increasing subscription revenue growth over time.
Strong Relationships With Tech-Giants: Docusign deepened its relationship with Salesforce and Microsoft. The company expanded its partnership with Salesforce in developing solutions for automation of the contract creation process and prolonged its collaboration among organizations that use Salesforce’s Slack.
DOCU integrated eSignature with Microsoft Teams, and it acts as the official electronic signature provider in Microsoft Teams’ Approval app. DOCU leverages these collaborations to sell into a higher number of accounts.
Risks Faced by Docusign
Weak Liquidity: DOCU’s current ratio at the end of the first quarter of fiscal 2027 stood at 0.66, declining from the year-ago quarter’s 0.79. A current ratio of less than 1 does not bode well with investors as it highlights the company’s inability to cover short-term obligations.
Competitive Pressure Threatens Pricing: New and existing competitors introduce products or reduce prices. In those instances, the company might have to deal with the inability to win customers or retain the ones that exist. Demand for price discounts can rise as mid to large-sized companies renegotiate contracts. Hence, competitive pressure can affect DOCU’s pricing structure.
Lack of Dividend: DOCU does not have any plan to pay out cash dividends. Hence, the only way to achieve a return is share price appreciation, which is not guaranteed. Income-seeking investors will find it unappealing to buy DOCU shares on the grounds of non-payment of dividends.
DOCU’s Zacks Rank & Stocks to Consider
The company has a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks from the broader Zacks Computer And Technology sector are Analog Devices (ADI - Free Report) and Applied Materials (AMAT - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Analog Devices has a long-term earnings growth expectation of 28.8%. ADI delivered a trailing four-quarter earnings surprise of 5.5%, on average.
Applied Materials has a long-term earnings growth expectation of 29.7%. AMAT delivered a trailing four-quarter earnings surprise of 5.9%, on average.