DocuSign Has Entered a New Phase That Benefits First-Time Buyers

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DocuSign (NASDAQ:DOCU) fell off a cliff when it released earnings back in early December. And in the weeks since, DOCU stock hasn’t shown many signs of retracing those losses. In fact, it has actually fallen lower. But that is about as good of a buying opportunity as investors are likely to get. 

DocuSign Stock May Be Overdone, but It's Still a Great Long-Term Buy
Source: Sundry Photography / Shutterstock.com

So, what precipitated investors exiting so rapidly when earnings were released in early December? In particular, it had to do with the company’s billings.

Here’s what you should know about DOCU stock moving forward.

DOCU Stock: Fear and a Quick Shift

Words out of the mouth of CEO Dan Springer told all there is to know about DocuSign’s current troubles. Springer had the following to say:

“After six quarters of accelerated growth, we saw customers return to more normalized buying patterns, resulting in 28% year-over-year billings growth.”

That 28% YOY increase in billings growth was a severe disappointment. It represented $565.2 million in billings in the fiscal third quarter. The company had given prior billings guidance of between $585 million and $597 million.

When CEO Dan Springer characterized the miss as a result of a return to more normalized buying patterns, the rout was on. DOCU stock dropped from a close of nearly $234 to a close of $135 immediately the next day. In the two months since, it has fallen to around $121. 

In my opinion, though, the market is treating DocuSign as if its business model is doomed. It isn’t. That’s why there’s so much potential for DOCU stock at current prices. 

The New Normal

Investors didn’t take kindly to this earlier-than-anticipated shift into the new normal. But ultimately, DocuSign couldn’t maintain the growth levels investors had become accustomed to during the pandemic. A shift was bound to happen. Investors in DOCU stock had to know that. 

Now that it has occurred, what investors have in front of them is a lower-priced leader in the electronic-document signing industry. 

The good news? DocuSign will be much more predictable moving forward. For the coming quarter, the company gave guidance of between $557 million and $563 million in revenues. All signs point to DocuSign falling within that range. According to Seeking Alpha, analysts currently anticipate the company recording $561.6 million in revenues.

This implies DocuSign has overcome a significant, inevitable obstacle: the post-pandemic let down. A glass-half-full take recognizes that it’s now much more predictable moving forward. That’s what seems to be bearing out as we approach the first earnings release following the let down. 

Growth Ahead

It has always been my view that investing should rely on identifying strong companies first. Then, investors should identify when they’re priced advantageously. I think that DocuSign is still a strong company. 

When all is said and done in fiscal 2022, DOCU will probably record close to $2.09 billion in revenues. That will signal the beginning of fiscal 2023, in which the firm is anticipated to record $2.6 billion in revenues by consensus of the 21 analysts covering it. That’s still 25% growth on an annualized basis.

Investors can’t expect DocuSign to consistently grow at 40% as it did during the pandemic. Sure, stockholders had little choice but to flee once the company admitted more normalized buying patterns had emerged. The market was going to overreact. They had to salvage whatever remaining gains they had. But that’s an opportunity for investors who never held DOCU stock during the pandemic. 

What to Do with DocuSign

DocuSign seems to be nearing a bottom. But instead of only trying to time that bottom, investors should simply note that growth is expected. Right now, fair value for DOCU hovers around $154. Wall Street has an average target price of $195

This new normal is really a blessing for investors who’ve never held DocuSign shares. Investors who sit in that position can buy a name in DocuSign with plenty of growth ahead. Of course, the case is less clear for investors who purchased the stock at earlier dates. All told, though, DOCU stock looks strong. 

On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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