The trend towards more work from home is expanding DocuSign’s (NASDAQ:DOCU) reach. Customers and companies need to minimize face-to-face meetings even when signing off on deals. The growth in remote work might boost the prospects of holding DocuSign stock. At the close to 52-week highs and more than three-fold above its 52-week low, should investors add to this software darling?

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On June 22, DocuSign joined the Nasdaq-100 index. Bumping United Airlines (NASDAQ:UAL) off the list forced exchange-traded funds and mutual funds that mirror the index to add DocuSign shares.

But this growing software company deserves extra attention. Billings went up sharply, as the pandemic from the novel coronavirus lifted revenue.

First-Quarter Strength Lifts DocuSign Stock

In the fiscal first quarter of 2021, the company earned 12 cents a share as revenue jumped 38.8% from last year to $297.02 million. Billings jumped 59% to $342 million Y/Y. Enterprise and commercial revenue accounted for 88% of the total, up from 87% last year.

The average contract length improved, too. One-third of the contracts are over 12 months on a dollar-weighted basis. Revenue visibility gives investors the confidence to expect customer growth rates to continue.

DocuSign grew its headcount and added proportionately more international staff in Q1. It now has 4,281 staff, up from 3,219 last year. CEO Dan Springer attributed the vertical industry volume growth to the strength in the Healthcare and Life Sciences sectors. He also said that “We also saw the government sector is very strong as a lot of folks had that phenomenon we described. They knew at some point they were going to have to do more digital transformation to their business and COVID-19 has accelerated it.”

Strong demand across multiple industries and geographies suggests that healthy business growth will continue over the next few quarters.

Stealth Growth

At the heart of DocuSign’s growth is the leveraging of its Application Programming Interface (“API”) with other software providers. This includes SAP (NYSE:SAP) and Salesforce.com (NYSE:CRM). Its integration accelerates user adoption for DocuSign solutions. More importantly, people who build the integration do so on platforms that many businesses use.

Risks

DocuSign’s unfavorable valuations will deter bargain hunters from investing in this fast-growing company. At a price/free cash flow of over 100 times and a price-to-book multiple of 67 times, the stock scores a 30/100 on value.

Metrics courtesy of Stockrover.com

Given the Nasdaq’s rise to over 10,000 and rich valuations for technology stocks in general, a correction in DocuSign’s valuation is unlikely. Value investors may seek discounts by picking other beaten down software stocks. The trade-off with this approach is the stock may never bounce back.

On Wall Street, 14 analysts offering a 12-month price target have a $169.50 downside target. Stockrover’s margin of safety is negative 47%, according to its research report.

Growth Opportunities

Although it is a slow-moving entity, DocuSign may win government contracts at the state and local level. It already has customers in the health and human services segment. Plus, the emergency need for processing unemployment benefits will lift DocuSign implementations in the near-term.

The CEO said: “… getting the FedRAMP certification that was required to serve a lot of folks, and now we’re building the dedicated data center as you referred to, which will unlock another set of opportunities for us with different federal agencies. “

Your Takeaway

Investors who bought DocuSign in the last year should continue holding the stock. Those who missed the rally may start a position or add to it.

The company is showing no signs of slowing down. Only a stock market correction might pull shares lower. With the Fed eager not to see that happen, a drop seems very unlikely.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.