DocuSign (NASDAQ: DOCU) is continuing a long, painful decline that started almost exactly one year ago in September 2021. What a different time that was. DOCU stock was trading for over $300 and was being fueled by a pandemic tailwind.
But in 2022 that tailwind has turned into a strong headwind. At issue is the question of what DocuSign can do for an encore? DocuSign has a big goal of achieving $5 billion in revenue. However, that would mean the company will have to generate more than twice the revenue it’s currently delivering.
Perhaps the company's earnings report on September 8 will provide some clues. Investors will be looking for growing revenue to be sure. But they’ll also want to see the company return to profitability. Earnings per share turned negative in the last two quarters.
I think Jea Yu was asking the right question in his article, “How Low Can DocuSign Go?” As painful as it might be for investors who jumped on DOCU stock in the middle of its rally, my fellow MarketBeat contributor was correct, it’s important for investors to pay attention to the floor right now. Here are some reasons to support that thought.
Building More Use Cases
DocuSign became a pandemic stock because it made all businesses adopt a digital model in weeks rather than years. DocuSign being the clear leader in the e-signature category benefited as businesses needed to conduct business online. But that also came with the question, what’s next?
DocuSign’s answer to that question is the Agreement Cloud. As DocuSign says the Agreement Cloud gives a business “everything you need to connect and automate your entire agreement process.” By this the company means not just electronic signatures but creating entire “smart contracts” online including tracking of negotiations, agreements, amendments, and more.
Of course, hearing the words “smart contract” makes me immediately think of blockchain and all the possibilities that continue to emerge there. However, with the cryptocurrency world having its own issues perhaps that’s a concern for another day.
This isn’t to say that DocuSign isn’t growing. Revenue last quarter was up 25% year-over-year. While the rate of growth is slowing, as would be expected, the company has a base of customers that will allow it to continue to deliver stable revenue.
But stable doesn’t get the company to its $5 billion goal. Nor will it do much to excite growth-minded investors.
Can You Teach an Old Dog New Tricks?
A cliché works because it points to a truth. And this truth was conveyed by analyst Jim Cramer. Agree with him or not, he made the point that DocuSign perhaps missed an opportunity to grow through acquisitions in related areas such as identity and cybersecurity.
And that brings up a different question which continues to hang over the company. That is are they setting themselves up as an acquisition target? As Jea Yu wrote in the article I reference above, the abrupt departure of the company’s CEO in June gave that theory more legs.
DOCU Stock Looks More Like a Trade More Than an Investment
With a beta of over 1 (1.21) and short interest of over 8%, it looks like traders may have a good time with DOCU stock. It’s also a reason to stay away.
I view DocuSign as a Hold for now. There are too many things that are unclear about their growth strategy, not the least of which is the naming of a new CEO. But I also believe there could be some value to buying shares if the stock were to fall below $50 per share. At that point, you could start legitimately wondering about the floor being too low rather than what the ceiling could potentially be.