Has DocuSign Stock Run Up a Little Too Quick for Comfort?

Today’s socially distanced “new normal” bodes well for DocuSign (NASDAQ:DOCU) in the long-run. But after printing dollars for investors in recent weeks is DocuSign stock still worth buying? Let’s take a look at what’s happening the company both technically and fundamentally to form a stronger risk-adjusted determination.

Has DocuSign Stock Run Up a Little Too Quick for Comfort?

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Shares of DocuSign have enjoyed a nice run. But it’s not alone; after all, the Nasdaq Composite has led the charge for bullish investors since the broader market’s novel-coronavirus lows in late March. The bellwether gained more than 52% at its recent record breaking, all-time-highs. Still, DocuSign has nearly tripled the tech-heavy index’s performance.

DocuSign’s stock has returned almost 150% since bottoming the week of March 9 and a couple weeks in front of the Nasdaq. It was a first indication of things to come. And it would be a mistake to think there aren’t more gains left for the stock either.

At its core, and along with Zoom Video (NASDAQ:ZM), Teladoc Health (NYSE:TDOC) or more recognizable household heavyweights like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), DocuSign appears built for today’s strongly trending social distancing protocols and practices.

In an increasingly remote world where business still needs to get done, DocuSign’s e-signature empire is without equal and more important than ever. Moreover, it’s recent earning topper confirms as much.

DocuSign breezed past Street views by 2 cents with profits of 12 cents a share on revenues of $297 million compared to estimates of $281 million. Billings grew by 59%. Management also guided its sales forecast for the current quarter above analyst forecasts. The company now sees midpoint revenues of $318 million versus consensus views of $303 million.

According to RBC Capital, “DocuSign delivered an exceptional quarter with the strongest beat in its history clearly positioning itself in the winner/beneficiary segment of the trend to Remote Work.” The firm reiterated its buy recommendation and boosted its price target from $150 to $170 on shares.

Now Nasdaq is also giving a boost to shares as it shows its support for DocuSign’s importance as a publicly traded company. After Friday’s closing bell, regulators announced DocuSign stock will be added to the Nasdaq-100 on June 22. Shares will replace struggling airliner United Airlines (NASDAQ:UAL).

DocuSign Stock Weekly Price Chart

Source: Charts by TradingView

On the back of DocuSign’s inclusion into the NASDAQ-100 shares are bid up by about 8% and continuing to print the color of money for bulls. More importantly, for investors that aren’t forced to chase a stock due to an investing charter, shares are fairly overbought. That’s evident enough with price action that’s outside a well-opened upper Bollinger Band for a fairly dazzling, but ominous tenth straight week.

The advice today is for investors to wait for a likely overdue pullback to occur rather than chase what appears to be unsustainable momentum. The fact is even the best stocks can and often do correct by as much as 30% in a healthy stock investing environment. That might seem unthinkable right now. But if a fairly common correction did occur, DocuSign could decline towards $115 before forming a bottom.

Still, what if DocuSign shares find themselves in the more rare company of defying the odds and its friendly trend continues to persist? My other suggestion for intermediate-minded investors eyeing the long-haul in shares would be to buy DocuSign as part of a very flexible, but also compellingly important limited and reduced risk collar spread strategy. With shares near $162, one favored spread of this type is the July $150 put / $180 call collar for $163.25.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/06/has-docusign-stock-run-up-a-little-too-quick-for-comfort/.

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