When the novel coronavirus struck, we all knew companies in the digital space would see a sharp increase in usage. That’s what happened with Salesforce (NYSE:CRM), Zoom (NASDAQ:ZM), and Slack (NYSE:WORK), all of whom offer services that help companies manage their workflows better in a remote environment. However, DocuSign (NASDAQ:DOCU) stock is also making huge strides during this time.
Based in San Francisco, the company allows organizations to manage electronic agreements through its cloud-based technology. You can use the platform through subscription or free of charge mobile device apps.
I am not surprised DocuSign services are seeing increased usage in the current climate. As the crisis prolongs, more and more companies are looking to shift to the cloud and execute their daily work digitally. In such an environment, DocuSign is bound to thrive, and the company’s recent earnings are a testament to this fact.
In addition to these developments, the company is looking to broaden its horizons and create an ecosystem facilitating complete contract lifecycle management. The new offerings will significantly expand its moat and ensure the firm sustains its momentum moving forward.
Corovarius Lifts Q1 Earnings
It would be incorrect to say DocuSign would not have delivered a stellar first quarter if not for Covid-19. However, there is no denying the pandemic helped in driving subscription numbers northwards. EPS came in at 12 cents per share, beating analyst estimates by 2 cents. Q1 saw total customers growing to 661,000 from 508,000 in the year-ago quarter. Revenues smashed estimates by $16.18 million, reaching $297.02 million. The company issued guidance for revenues to reach between $316 million and $320 million in the forthcoming quarter.
CEO Dan Springer spoke on how long-term trends favor DocuSign.
“Companies are realizing, there’s a better way to do business getting rid of the paper-based processes, which are hard on themselves, hard on their customers and hard on the environment,” he said.
Maintaining Momentum for DOCU Stock
DocuSign’s management took practical steps to create an ecosystem built around contract lifecycle management.
In pursuing that goal, the company acquired SpringCM, a contract lifecycle management firm.
The company also paid $188 million to purchase Seal Software, an AI-powered technology solution focusing on enterprise contract analytics. The platform helps identify contract terms that are not beneficial or areas of improvement.
I believe the addition of these companies will allow DocuSign to reduce the churn rate. Its eSignature service remains the bread-and-butter product. But moving into these other areas is necessary to diversify operations.
Is DOCU Stock Overvalued?
In the last six months, DOCU stock has risen by almost 120%. Many investors are justifiably worried if the company is running out of steam. You can see that sentiment in analyst estimates as well, with a 12-month price target of $153.00 per share, which compares unfavorably to the current price of about $165 a pop.
However, what I think that analysts are missing here is that the stock comes with a lot of intrinsic value since it focuses on a niche industry that will grow at a compound annual growth rate of 24.6% between 2020 and 2030.
Given the forward-looking nature of the business, I don’t expect dirt-cheap valuations, but DOCU stock is trading at reasonably high multiples at the moment.
That said, the recent M&A activity shows management believes in the power of continuously diversifying their product suite. That’s certainly the right way to go. And, I think the markets will reward the company for this approach.
Takeaway on DOCU Stock
DOCU stock took a hit back in March, as Covid-19 walloped markets the world over. However, shares of the software-as-a-service company have made a full recovery since then.
Even though the effects of Covid-19 are weaning, social-distancing rules will likely become a norm rather than an exception moving forward. In such an environment, remote approval of documents will become commonplace in several companies.
I rate DOCU stock as a buy, despite shares trading at high multiples.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. He does not directly own the securities mentioned above.