DocuSign’s [DOCU] share price was a pandemic stalwart. A working from home mass movement drove up the demand to create and sign documents electronically. Between the 1 March 2020 and 30 August 2021, DocuSign’s share price soared over 259% to close just north of $310.
Since that high point DocuSign’s share price has experienced a steep fall. December was the nadir for DocuSign’s share price, when the stock crashed 34% to close the year at $152.31..
DocuSign's share price increase between March 2020 and September 2021
The catalyst for the drop was that despite a beat on both earnings and revenue for the third quarter, the electronic signatures company said that it expected growth to slow down in the last three months of 2021.
Revenue in the fourth quarter is now forecast for between $557m and $563m, down from the $573.8m that Wall Street was expecting. While that’s a 30% growth rate, it’s well off the circa 40% revenue growth that the company had posted for the previous six quarters.
“While we had expected an eventual step down from the peak levels of growth achieved during the height of the pandemic, the environment shifted more quickly than we anticipated,” Springer said on the earnings call.
Yet that drop could mean that DocuSign’s share price is arguably cheap - or at least trading at a more realistic level
What’s happening with DocuSign’s share price
The start of 2022 hasn’t been any kinder to DocuSign’s share price. The stock is down over 10% so far in 2022 in a selloff that has hit other tech stocks. DocuSign also carries a high forward price to earnings ratio of 60.61, making it no surprise that news of a slowdown in growth put the company’s valuation in question.
An article from Superstocks Seeker on Seeking Alpha suggests that the stock’s current valuation only incorporates growth in DocuSign’ss e-signature business, not its enterprise software offering Agreement Cloud. While the writers acknowledge that Agreement Cloud is showing ‘insignificant revenue for now’, they suggest it is a ‘greenfield opportunity’. As DocuSign becomes more embedded in customer workflows, then it could have the opportunity to upsell Agreement Cloud.
Superstocks Seeker also notes that DocuSign CEO Dan Springer bought $5M worth of stock after the disappointing third quarter earnings, quoting Springer as saying “I'm very confident. I'm making a good investment.”
Analyst take on DocuSign’s share price
Wall Street came down hard on DocuSign following its third quarter earnings. Wedbush analyst Daniel Ives downgraded DocuSign to Neutral from Outperform, trimming his price target from $340 to $200. Ives wrote in a note that he wondered if the clock had hit “midnight on the [DocuSign] hypergrowth story" .
“I'm very confident. I'm making a good investment” - DocuSign CEO Dan Springer, who bought $5m DocuSign shares after Q3 earnings were reported
Sterling Auty at JP Morgan pinned a $175 price target on DocuSign, cutting his rating from Neutral to Underweight. The analyst said that the pandemic boost had come to a sooner than expected end, and while the long-term opportunity looked robust, the stock was likely to underperform other tech companies in the first half of 2022.
Over at Piper Sandler, Rob Owens trimmed his target from $200 to $175, maintaining his Neutral rating. Owens noted that he was optimistic about cybersecurity spend going into 2022. This follows Owens having cut his price target from $330 to $200 after last year’s earnings call, citing the ‘weak’ fourth quarter guidance.
Notably all of these price targets are significantly above DocuSign’s share price at Tuesday’s close. For example, Wedbush’s Daniel Ives target would see a x% upside. So while the hyper growth narrative around DocuSign’s share price might be over, there could still be some upside left in the stock, although investors may need to be patient.
Roystan Yang writing on the Motley Fool says that investors will “have to wait a few more quarters for the company’s growth engine to restart”. In his analysis, Yang cites DocuSign’s strong operational numbers and a growth in customers with an average contract value over $300,000. Yang also points to Dan Springer’s strategy to arrest slowing growth through global expansion.
“With an entrenched position within the electronic signature market and the introduction of new products and services, DocuSign looks set to do well in the long run,” writes Yang.
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