The novel coronavirus pandemic isn’t expected to last forever, but some of the changes to the business world may have permanence. One beneficiary of these changes is electronic-signature specialist DocuSign (NASDAQ:DOCU). And DocuSign stock has booked significant gains lately.
Investors who like to home in on bargains in the stock market might feel that DocuSign stock have gone up too much, too quickly. After all, businesses aren’t flourishing as they struggle with the economic fallout of Covid-19.
And indeed, from a price perspective, it might be difficult to justify a long position in DocuSign stock now. But it’s hard to deny that the company is well positioned to generate revenue. Social-distancing guidelines could persist for quite a while.
A Closer Look at DocuSign Stock
If there is indeed a bearish case against owning DocuSign stock, it would stem from the rather lofty price point. Currently, the shares trade closer to their high of $205.80 than the 52-week low of $43.13.
This is all the more startling when we consider that DOCU stock spent several years stuck below $80 prior to the pandemic. It can be concluded, then, that Covid-19 was the primary catalyst of the powerful bull run in DocuSign stock.
For the current trajectory to continue, investors would need assurance that DocuSign’s revenue-generation strategy will remain viable even after Covid-19 subsides. Such a case can be made as the business world’s shift to digital modalities is, in all likelihood, here to stay.
Nothing Is Normal
Commentators (present company included) are fond of citing the “new normal” in the business ecosystem. Social-distancing guidelines have made contactless transactions a priority.
DocuSign was ahead of the curve in facilitating these hands-off transactions. Years before the onset of the coronavirus, the company was quietly developing its e-signature business. Some might actually claim that even without the advent of the pandemic, DocuSign’s business would have flourished sooner or later.
As it turned out, Covid-19 made it happen sooner rather than later. InvestorPlace contributor Faizan Farooque colorfully describes an expectation-beating first quarter for DocuSign:
“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.”
If this is the “new normal,” then DocuSign’s generating abnormal returns and that’s great for the shareholders. But with a blockbuster in the rearview mirror, it is reasonable to expect DocuSign stock to push even higher?
DocuSign Builds a Durable Business
For his part, RBC Capital analyst Alex Zukin seems to believe that DocuSign’s business has staying power. RBC Capital recently reaffirmed its rating of “outperform” on DocuSign stock while hiking its price target to $210 from $170.
With this, Zukin correctly cites businesses’ pivot to digital strategies during the pandemic. DocuSign truly does deserve credit for helping companies maintain a working environment that’s as contact-free as possible.
Regarding the persistence of this trend toward a contactless business environment, Zukin envisions DocuSign as “taking disproportionate share.” Additionally, Zukin says the company maintains “the greatest engagement durability vs. our [work from home] group at the moment.”
Zukin’s argument is compelling because DocuSign got into the e-signature market early and aggressively. The company couldn’t possibly have predicted the Covid-19 pandemic, but it was more than ready for the big changes that the virus precipitated.
The Bottom Line on DocuSign Stock
Farooque’s assessment that DocuSign stock “still has room left to grow” is entirely reasonable, as is Zukin’s ambitious price target.
The “new normal” won’t be normal at all, but thankfully DocuSign’s helping businesses to adapt and that’s a win-win.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
