DocuSign’s [DOCU] share price had been on a strong upward trajectory throughout most of 2020 but, since peaking at the start of September at an intraday high of $290.23, the stock has levelled off. Can the company’s upcoming earnings announcement on 3 December boost DocuSign’s share price back above its 52-week high?
DocuSign’s share price has rallied 232.4% since its March low, making it one of many software stocks that have done well since the coronavirus-triggered market selloff. The stock has climbed 191% year to date, to $215.71 (as of 1 December’s close).
It would be unfair to ascribe DocuSign’s share price growth solely to the explosion of homeworking since March. Shares in the company enjoyed stellar growth last year — gaining 89.3% in 2019 — and, although it has slowed in the last few months, DocuSign has become a dominant player in the electronic signature market.
Investors are in agreement
The software company also has a sizeable consumer base, with nearly 750,000 paying customers as of 3 September, illustrating the acute acceleration in demand for digitally signed documents.
The electronic signature market has become more competitive in 2020, but DocuSign shows no sign of resting on its laurels. The company is looking beyond the signature component of agreements to automate other elements of the agreement process, such as identity verification.
In June, CEO Dan Springer said that much of the company’s strong first quarter performance was driven by increased demand for its eSignature service from organisations that suddenly needed a way to sign and manage agreements remotely. The service is often “the first step that many customers take on their broader digital transformation journey with us”, he pointed out in the earnings call.
The digital signature market is projected to grow from $2.8bn in 2020 to $14.1bn in 2026, according to a report by Research and Markets.
projected growth of digital signature market by 2026
In DocuSign’s second quarter announcement, it issued an outlook that expected its revenue for the upcoming quarter to be in the range of between $358m and $362m. For the full fiscal year of 2021, it projects revenue of between $1.384bn and $1.388bn.
DocuSign’s share price could stand to gain if these forecasted projections are met, and that looks likely considering that the company has beaten Zacks consensus earnings estimates for each of the last four quarters.
In the last week of November, Alex Zukin, an analyst at RBC Capital, maintained a Buy rating and set a target of $275 for DocuSign’s share price. He expects the company to post earnings of -$0.35 for the third quarter of fiscal year 2021. Zacks, meanwhile, expects earnings to be more in the range of $0.12, which would represent 9% year-over-year growth.
Analysts tracking the company’s revenue growth have a consensus forecast of $360m for the upcoming quarter on Zacks, with a low estimate of $359m and a high of $362m. The median projection represents growth of 44.7% compared to the year ago quarter. According to analyst consensus estimate figures, the company’s yearly revenue forecast for 2020 is expected to hit $1.39bn, up 42% from the figure reported last year.
A strong sign of growth
DocuSign received a ringing endorsement from Joe Terranova, managing director at Virtus Investment Partners, on CNBC in late November. “There is incredible value in DocuSign,” he said. “It is an emerging growth stock and not going away.”
Jim Cramer, a market commentator on CNBC’s Mad Money show, referred to it as a stay-at-home stock that is here to stay. Meanwhile, Kourtney Gibson, president of Loop Capital Markets, suggested 30% to 50% growth is a reasonable expectation for DocuSign’s share price.
The broader market is showing no signs of rotating out of work from home beneficiaries, as analysts have grown more bullish on DocuSign’s share price. The consensus among 19 of those polled by MarketBeat is to buy the stock, with 14 giving that recommendation and just five rating it Hold.
|Operating margin (TTM)||-16.06%|
|Quarterly revenue growth (YoY)||45.20%|
DocuSign's share price vitals, Yahoo Finance, 2 December 2020