DocuSign Surges Ahead: What Does This Mean for Investors?
DocuSign, Inc. DOCU has shown remarkable performance recently, with a 20.3% rise in its stock price over the last month, outpacing the broader industry growth of 6.7%.
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In the latest trading session, DOCU shares closed at $83, just shy of their 52-week high of $83.68. The stock is also above its 50-day moving average, indicating strong investor confidence.
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This surge may attract potential buyers, but is now the right time to invest in DOCU? Let’s take a closer look.
Strong Demand Drives DocuSign’s Growth
DocuSign continues to thrive amid a growing customer demand for electronic signature solutions in a vast market. Its customer base expanded from 1.1 million in fiscal 2022 to 1.5 million in fiscal 2024. This upward trend suggests that growth will likely continue in future years. Notably, the eSignature market remains largely unexploited, leaving DocuSign with numerous opportunities for growth.
Subscription fees make up 97% of DocuSign’s total revenue. These fees provide access to products and customer support, typically lasting from one to three years. A subscription model is beneficial for software companies as it stabilizes revenue and ensures consistent cash flows, making their solutions more accessible even to smaller firms.
Innovative go-to-market strategies have also helped DocuSign expand its commercial and enterprise customer base. Various initiatives have led to a 10% growth in subscription revenues for fiscal 2024, primarily benefiting from existing customer expansion and new clients.
International revenues have shown consistent growth, comprising 23%, 25%, and 26% of total revenues in 2022, 2023, and 2024, respectively. DocuSign has targeted expansion efforts in Canada, the U.K., and Australia, aligning its eSignature solutions with similar practices seen in the U.S. Increasing demand across different regions has prompted the company’s focus on further sales and marketing efforts.
Strategic partnerships with industry leaders like Salesforce CRM and Microsoft MSFT have deepened DocuSign’s market presence. Through collaboration with Salesforce, the company has developed solutions to automate contract creation and enhance collaboration through Salesforce’s Slack. Additionally, DocuSign integrated its eSignature capabilities into Microsoft Teams last year, becoming an official electronic signature provider for the Teams’ Approvals app. These partnerships grant the company access to a broader customer base than it could reach independently.
Highlighting DocuSign’s Financial Efficiency
The return on equity (ROE) for DocuSign stands at 53.7%, compared to the industry average of 31.8%. This metric serves as a key indicator of how effectively a company utilizes shareholder investments to generate earnings.
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Positive Earnings Outlook
According to the Zacks Consensus Estimate, DocuSign’s fiscal 2025 earnings are expected to be $3.45, which reflects a growth of 15.8% from the previous year. Earnings for fiscal 2026 are projected to rise by 6%. Additionally, sales are anticipated to increase by 6.5% and 6% for fiscal 2025 and 2026, respectively.
In the past two months, one estimate for fiscal 2025 has improved, with no declines noted. The Zacks Consensus Estimate for earnings in fiscal 2025 has risen by 0.6% during this period.
Consider Holding for a More Favorable Entry
DocuSign’s strong stock performance can be attributed to high demand for eSignature solutions, a growing customer base, and strategic partnerships with Salesforce and Microsoft. These elements signal its potential for further growth. The subscription-based revenue model and focused international expansion add to its financial robustness. However, as the stock nears its 52-week high and trades above its 50-day moving average, a correction may be imminent. Despite solid long-term prospects, investors might want to consider waiting for a better time to buy. Currently, we suggest holding DOCU shares and staying alert for more advantageous entry points.
DOCU is presently rated as Zacks Rank #3 (Hold). You can view the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
