DocuSign (DOCU)
is a Zacks Rank #1 (Strong Buy) that provides electronic signature software in the United States and internationally. DocuSign became very popular during the pandemic as it was a great solution to sign documents when not physically present. The company became a go to for many businesses that needed to digitally prepare, sign, act on, and manage agreements.
COVID helped the stock surge to $315 from the $80 level and now the stock is trading at $55. From a long-term perspective, current levels look attractive after the company posted a solid earnings beat.
More about DocuSign
The company incorporated in 2003 and is headquartered in San Francisco, California. It employs over 7,000 people and has a market cap of $11 billion.
DocuSign serves enterprise, commercial, and small businesses to whom it sells its products through direct, partner-assisted, and Web-based sales.
The stock has a Zacks Style Score of “B” in Growth, but “F” in Value. The Forward PE is 29 and the stock pays no dividend.
2022 Stock Slide
DocuSign posted big numbers during the pandemic, beating earnings by triple digit percentages multiple times. The momentum continued until late 2021, when the stock crashed after a disappointing Q4 earnings beat of 26%.
For most companies, a beat of that magnitude would be a positive. However, DOCU investors priced in the best possible scenario so when growth appeared to slow, the stock was sold aggressively.
2022 has not been kind to investors as the stock continued to slide as earnings disappointed. In June, the company posted 17% earnings miss. This brought the stock down to pre-pandemic levels.
Earnings Turnaround
While 2022 was very tough, 2023 could be shaping up to be a much better year. Earlier in December, the company posted a 39% EPS beat. This was the biggest surprise to the upside since Q2 of 2021.
Looking into the quarter, DocuSign guided Q4 revenues at $637-641M v the $640M expected. The company raised their FY23 revenue guide to $2.49-2.50B v the $2.48B expected.
Billings were up 17% y/y, while subscription revenue was up 18% y/y.
Estimates Rising
Analysts are starting to take their numbers higher after the most recent quarter.
Over the last 30 days, the current quarter estimates have gone from $0.40 to $0.53, or 32% higher. Expectations for next quarter have been lifted as well, with estimates going up by 17%.
Looking down the road, estimates continue to tick higher. For the current year, we have seen estimates go from $1.63 to $1.92 over the last month, or 17%. For next year, estimates spiked to $2.15 from $1.80, or 19%.
After earnings, analyst for the most part remained neutral on the stock. Multiple firms stuck with the “Hold and “Neutral” ratings. But more recently CitiGroup reiterated its Buy rating and took its price target to $72 from $59. This target is about 30% higher from current prices.
The Technical Take
The stock wont be making a full recovery anytime soon, but the current technical setup is favorable.
After posting that 39% EPS beat earlier this month, the stock went from $41 to $61. That is a big move and the stock retraced to the halfway back mark at $51. Sideways trading has set in, but the stock could see a scenario early next year where the stock runs back over the recent highs to the $66 area. This is where the 200-day MA resides and where bulls should target.
In Summary
2022 is over and its time to look for beaten down stocks that could bounce back in 2023. After a big earnings beat, DocuSign could be one of those names.
Watch for a rally early in the year and if that is sustained, look for bulls to buy the stock up to the 200-day moving average.
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