DocuSign is an innovator in e-signature technology. Additionally, the company offers document generation and analytics services.

DOCU stock: Neutral. (See Analysts’ Top Stocks on TipRanks)

Pandemics accelerate E-signature trends

Commerce was affected by many aspects of the pandemic. Trends that had been in motion were sometimes significantly amplified. They include remote work, grocery delivery, electronic commerce adoption and paperless transactions. Paperless transactions are accompanied by a greater demand for esignature services. E-signature had been the future of business before the pandemic. It was just that COVID-19 accelerated this trend.

DocuSign’s annual fiscal period immediately prior to the pandemic saw revenues increase by almost 39%. DocuSign is a fiscal year that ends January 31. This means FY21 would be the February 1st 2020 to January 31 2021 period. Pandemics were a major catalyst for adoption. Revenues increased by more than 49% over FY21.

It is crucial to note that DOCU had been in high growth mode before the pandemic. E-signature adoption will not be reversed once COVID-19 has lessened its dangers. DocuSign has been the best provider.

Docuums are more than just E-sig

DocuSign provides an online platform that allows parties to prepare, sign, act and manage agreements. With this, the company has access to a market worth $50B. There is plenty of potential for growth, with FY21’s annual revenue at $1.45B.

The company expects to increase revenues by over 40% in FY22. DocuSign has smartly invested in expanding its services to keep up with growing competitors. Notary and insight services are also being added or expanded. These services use analytics and artificial intelligence.

There may be better entry points

DocuSign is currently trading at a price to sales (PS) ratio of over 28x, and forward PS ratios over 24x. Although these are not uncommon in growth stocks, they are still quite impressive.

Also, the stock is down 15% from all-time highs. Investors fear that pandemic tailwinds could slow growth, which is contrary to aggressive estimates. The trend may reverse, but this pullback started in September 2021. It is best for investors to invest incrementally and prudently.

DocuSign appears to be on track for net profitability. Last quarter’s quarterly reports showed losses just above $25M, and operating losses exceeding $22.5M. This is practically breaking even for an enterprise of this scale. The company is expected to be profitable soon, and this will bode well as it continues scaling. GAAP profit may provide the spark that the stock price requires to reverse its downtrend.

Analysts weigh in

Wall Street analysts have a strong opinion about DOCU stock. They give it a Strong Buy consensus rating based on 15 Buys and no Holds.

It is very telling to see the clean sweep of Buy Ratings.

The average DOCU price target of $341.08 implies 30.4% upside potential.

DocuSign Summary

DocuSign has more to it than a pandemic stock. Management is optimistic that the company will grow as fast post-COVID-19. E-signature is not temporary, they are the new norm. This trend is simply increasing.

DocuSign’s offerings are expanding as the competition heats up. There is much to love about the stock, but the price is high. Investors may profit from the stock. There may be better entry points for DOCU stock investors than the current downtrend.

Disclosure: Bradley Guichard did not hold any securities at the time this article was published.

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