DOCU with Nobias technology: DocuSign: Is This Pandemic Darling A Buy Down 52% From Recent Highs?
As the work-from-home trend dominated the workplace in 2020, DocuSign became of the stock market’s biggest winners during the pandemic period. During 2020, DOCU shares rose from approximately $74/share to more than $225/share at the close of the year. This bullish momentum continued for the company, with shares hitting their current 52-week high of $314.76 in the summer of 2021.
However, in recent months, we’ve seen the bullish sentiment that was surrounding these shares shift to a more bearish tone. During August, September, and October, DOCU shares sold off. And, this bearish momentum accelerated in a major way after the company’s recent Q3 report, which sent shares plummeting by more than 40%.
Right now, DOCU is trading with a 52% discount compared to its recent highs. And, with that in mind, we wanted to take a look at what the credible authors tracked by the Nobias algorithm have had to say about the stock recently, to see whether or not this significant sell-off is presenting an attractive opportunity to buy the dip.
DOCU Dec 2021
However, Ryan Downie, a Nobias 5-star rated author, wrote about DOCU’s recent issues, which began to spawn prior to the tumultuous Q3 quarterly report. Downie believes that there are numerous macro headwinds forming for DOCU (and speculative growth stocks like it) which were the major winners of 2020.
He said, “The pandemic is by no means over. However, vaccination rates are climbing, nonvaccination treatments are improving, and people are becoming more adjusted to the lifestyle changes associated with public health. Many businesses are bringing employees back to offices next year. Overall, consumer behavior appears to be normalizing, and it's unwinding faster than people had anticipated.”
Furthermore, Downie continued, highlighting the changing economic environment, saying, “Just as importantly, the game of musical chairs in the capital markets also looks like it's about to end. The Fed seems like it's accelerating its tapering and rate-hike timeline, which should drive capital out of the stock market and toward other asset classes, such as bonds. This puts downward pressure on stock prices, and the high valuation ones are the first to get hit.”
Vladimir Zernov, a Nobia 4-star rated analyst, recently published an article at Yahoo Finance titled, “Why Docusign Stock Is Down 40% Today” which highlighted the company’s recent plight from a micro standpoint. He began his report saying, “DocuSign reported revenue of $545 million and adjusted earnings of $0.58 per share, beating analyst estimates on both earnings and revenue.”
Therefore, it wasn’t the Q3 results which disappointed the market. Instead, as Zernov noted, it was the forward looking guidance that management provided. He said, “The company expects to report revenue of $557 million – $563 million, which means that growth is slowing down.”
With regard to the expected slowdown, Zernov quoted Dan Springer, DOCU’s CEO, commented on the Q3 results saying, “After six quarters of accelerated growth, we saw customers return to more normalized buying patterns, resulting in 28% year-over-year billings growth”. These words didn’t inspire confidence in the market and being that DOCU came into the third quarter print trading with an immense growth premium attached to shares, any disappointment was likely to lead to a sell-off.
Zernov touched upon DOCU’s valuation in his article. He wrote, “Currently, analysts expect that DocuSign will report earnings of $1.7 per share this year and $2.19 per share in the next year, so the stock is trading at 64 forward P/E despite the massive sell-off.” He compared DOCU’s 40% plunge to other recent sell-offs that we’ve witnessed from major winners of 2020 and the unique operating environment created by the COVID-19 pandemic. Zernov said, “Similar pandemic-era examples include Zoom, which is down by about 70% from highs that were reached back in October 2020, and Peloton, which is down by more than 70% year-to-date.”
Zernov continued, saying that neither Zoom nor Peloton have found footing, from a valuation support standpoint, since their recent sell-offs began than therefore, he expressed a bearish opinion of DOCU shares as well, saying, “In DocuSign’s case, potential for multiple compression remains significant even after the strong sell-off.” Zernov wasn’t the only credible analyst that we track who published a bearish report on DOCU in recent years.
On December 6th, Manisha Chatterjee, a Nobias 4-star rated analyst, wrote an article at entrepreneur.com titled, “Should You Buy the Post Earnings Dip in DocuSign?” Ultimately, Chatterjee’s conclusion was bearish. Chatterjee began by highlighting DOCU’s recent downfall, saying, “The San Francisco-based company witnessed massive demand for its solutions amid the COVID-19 pandemic with the heightened remote working culture. However, the stock has lost 52.3% in price over the past month to close Friday’s trading session at $135.09, after hitting its 52-week low of $131.51.”
Like Zernov, Chatterjee shed a light on DOCU’s valuation concerns, saying: “In terms of forward non-GAAP P/E, DOCU’s 68.57x is 185.2% higher than the 24.04x industry average. The stock’s 57.47x forward EV/EBITDA is 265.5% higher than the 15.72x industry average. Furthermore, its 12.77x forward EV/S and 12.73x P/S are higher than the 4.03x and 3.94x industry averages.”
Chatterjee concluded the report saying, “DOCU is a well-known company with more than 1,000,000 customers and hundreds of millions of users across 180 countries that use DocuSign to accelerate doing business. However, the stock is currently trading below its 50-day and 200-day moving averages of $260.96 and $251.36, respectively, indicating a downtrend. Also, the company could continue to be impacted as the demand for its solutions could decline as economies gradually recover and organizations prefer in-person meetings. So, we think it could be wise to wait before scooping up its shares.”
Downie, was a bit more bullish than Chatterjee or Zernov. In his response to DOCU’s recent 40%+ sell-off, he said, “This was all a healthy readjustment. The stock was way too expensive. Even after it got slammed, it's still more than 60% above its pre-pandemic level, with a forward P/E ratio still above 62. DocuSign is out of insane valuation territory, but it's still not really a value stock. Now it just looks like a reasonable growth stock for investors who wanted a more rational entry point.”
Richard Bowman, a Nobias 5-star rated analyst, recently published an article which came to an even more bullish conclusion that Downie’s. After analyzing the Q3 results, Bowman said, “Our estimate of DocuSign’s fair value based on forecast future cash flows is $180.60, (you can find out more about this calculation here). This implies the stock is now trading at a modest 23% discount - however, these forecasts may well be revised slightly lower now that guidance is softer.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Bowman continued, saying, “It appears that the 50% decline in DocuSign’s share price has brought the stock back to a reasonable valuation. One of the reasons for this is the net loss which makes the company appear less profitable than the positive free cash flow suggests. The share may not be a bargain at the current price, but it may have less downside risk than other software stocks that are trading at substantial premiums.”
When looking at the credible analysts that the Nobias algorithm tracks, we see that the average price target amongst the 4 and 5-star individuals that we rate on Wall Street for DOCU is currently $219.78. This is even higher than Bowman’s fair value estimate, pointing towards upside potential of approximately 46.5% at DOCU’s current share price of $150.01.
Overall, when looking at all of the articles and reports recently published on DOCU by the credible authors that our algorithm tracks, we see that 79% of the opinions expressed on DOCU shares are bullish. Since DOCU’s Q3 report, the bull/bear spread has been a bit more even. 9 of the reports since 12/2/2020 (when the Q3 results were reported) have come along with a “sell” rating. The other 8 reports that we’ve analyzed since 12/3/2021 have come with “buy” ratings.
In short, the credible author community is dividend when it comes to DocuSign’s rating now that the disappointing results are in. But, the Wall Street analysts who cover the stock continue to maintain an average price target which points towards immense upside.
Disclosure: Nicholas Ward has no position in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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