There’s no denying that DocuSign (NASDAQ:DOCU) has been one of the biggest winners during this novel coronavirus pandemic. And that’s not simply because DOCU stock has skyrocketed this year, although that certainly plays a part in it.
Rather, its core business of digitalizing signatures and creating a high-trust, the online-based business transactional ecosystem will be relevant in the future, new normal or otherwise.
Obviously, the biggest catalyst for DOCU stock lies in its positive effect on the broader healthcare system. For starters, by facilitating a platform of contactless documentation and e-signatures, DocuSign helps cut down on person-to-person interactions. In this manner, the company is the administrative counterpart of Teladoc Health (NYSE:TDOC). Not surprisingly, TDOC shares have also soared to the moon this year.
Second, the digitalization and more streamlining of documentation trails is a gamechanger for our healthcare networks. Too often, our medical professionals are inundated with administrative tasks – time that could be better spent helping patients. In a normal environment, this creates mass inefficiencies. In a pandemic, it could be the difference between life and death.
But it’s not just healthcare that has been an incredibly viable catalyst for DOCU stock. Rather, DocuSign offers improved efficiencies across multiple industries, particularly real estate. As anyone who has bought a house can attest, the litany of paperwork involved to close a deal is onerous. With DOCU’s platform, all parties – the purchase, agent, broker, and other intermediaries – can rifle through their administrative obligations quickly and accurately.
Plus, with increased interest toward the gig economy thanks to the work-from-home paradigm shift, DocuSign’s solutions will theoretically become more valuable. So, why hasn’t DocuSign stock reflected these and many other catalysts?
Nearer-Term Bullishness and DocuSign Stock
Recently, I was looking over an analysis between DocuSign stock and Adobe (NASDAQ:ADBE). One of the drawbacks cited against DOCU is that most of the optimism could be priced in. And that’s a fair point. For instance, the healthcare angle is a logical one but also a well-known factor at this point.
Also, you have to wonder about the demand for DocuSign once the pandemic fades away. While I appreciate the various contactless services to promote social distancing and other mitigation protocols, it’s hard to imagine that these acute shifts in behavior will stick. Though we may be worried about sharing pens and shaking hands today, that might not apply later.
Moreover, the pensiveness toward DocuSign stock is beginning to reflect in its technical chart. Since the crisis began, DOCU shares have been almost perfectly correlated with the exchange-traded fund Franklin Disruptive Commerce ETF (NYSEAMEX:BUYZ). However, this correlation dipped slightly since the start of July.
Generally speaking, this signals that some of the disruptive high-fliers of this year – names that include Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP) – may be due for a breather. If so, it wouldn’t surprise me to see DOCU stock enter a healthy correction.
Further, I’m not getting a confident read with the technical pattern that I see. If I’m interpreting the formation correctly, DocuSign stock could be printing a broadening wedge. This pattern occurs when the bulls are attempting to push the price higher, but the “energy” is simply lacking. Once exhausted, the bears take control, causing shares to tumble out of the formation.
Should this happen, I wouldn’t panic. Instead, I’d look at DOCU as a long-term opportunity. Clearly, this is an innovation that is relevant. But I’d prefer it to be relevant at a better price.
We’re All Facing a Reality Check
Another reason to be careful about DocuSign stock is that the industries that the underlying company serves may also be due for a correction.
First, I really appreciate what DOCU would bring to the real estate market post-pandemic. However, the rush to buy real estate now not only runs counter to the fundamentals but also speaks to mass buyer panic. The one fact that every American should focus on is that 40 million of our fellow citizens face eviction.
But I’m almost certain that people are stretching themselves now because prices keep rising higher. This can’t go on indefinitely, not when millions of jobs have been lost permanently.
Eventually, this dynamic could trickle down to DocuSign stock. So I’ll reiterate what I said earlier about DOCU. I like the company but I’d prefer a more attractive entry point.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.