DocuSign’s Stock Soars: Is it Time to Invest?
DocuSign, Inc. (DOCU) has experienced a significant increase in its stock price, rising 27.9% over the last three months, compared to the broader industry’s growth of 7.3%.
Recently, DOCU’s stock closed at $71.78, just shy of its 52-week high of $73.8. Trading above its 50-day moving average further indicates positive investor sentiment.
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With strong performance in DOCU shares, investors may consider purchasing the stock. But is it still a good time to invest in DOCU? Let’s explore.
Driving Growth through Demand
DocuSign continues to thrive due to high customer demand for its eSignature solutions in a vast market. The company’s customer base has increased from 1.1 million in fiscal 2022 to 1.5 million in fiscal 2024. This trend is expected to persist, as considerable parts of the eSignature market remain untapped, presenting DocuSign with numerous opportunities to grow revenue worldwide.
Subscription fees represent 97% of DocuSign’s total revenue. These fees cover product usage and customer support, typically ranging from one to three years. This subscription model proves advantageous for software developers, creating stable revenue streams, enhancing cash flow visibility, and making expensive software more accessible to resource-constrained businesses.
DOCU’s strategic initiatives targeting both commercial and enterprise customers have aided subscription revenue growth. In fiscal 2024, subscription revenues saw a 10% increase, attributed mainly to existing and new customer expansions.
International revenues for DocuSign have steadily climbed over the past three years, growing from 23% in 2022 to 26% in 2024. The company launched its international efforts in Canada, the U.K., and Australia, capitalizing on similarities in eSignature processes between these locations and the U.S. This demand is being harnessed through focused sales and marketing initiatives.
DocuSign has also formed strong relationships with leading tech companies like Salesforce (CRM) and Microsoft (MSFT). For example, DocuSign has enhanced its partnership with Salesforce to automate contract creation and improve collaboration tools in Salesforce’s Slack. Moreover, last year, the company integrated eSignature services into Microsoft Teams, becoming an official partner for its Approvals app. Such collaborations allow DocuSign to reach a broader range of customers than it could independently.
Solid Returns on Investments
Return on equity (ROE) is a crucial metric indicating how effectively a company uses shareholder investments to generate profits. DocuSign boasts a trailing 12-month ROE of 53.7%, significantly surpassing the industry average of 9.5%.
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In terms of return on invested capital (ROIC), DocuSign reports a trailing 12-month ROIC of 12.9%, well above the industry average of 4.4%. This indicates effective investments in profitable opportunities.
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Positive Earnings Outlook
The Zacks Consensus Estimate for DOCU’s earnings in fiscal 2025 stands at $3.45, reflecting a 15.8% increase from last year. The forecast for fiscal 2026 indicates a further 6% rise in earnings compared to previous figures. Sales expectations for fiscal 2025 and 2026 are projected to grow by 6.5% and 6%, respectively.
In the past 60 days, seven estimates for fiscal 2025 have been revised upward, while none have been lowered, showing analysts’ confidence in DocuSign. The Zacks Consensus Estimate for fiscal 2025 earnings has increased by 6.8% during this period.
Why Invest in DOCU Now
DocuSign stands out as a compelling investment option due to its robust market presence and ongoing growth potential. The company has shown resilience in the rapidly evolving eSignature market, attracting a growing customer base. Its subscription model ensures long-term revenue stability and predictable cash flow.
Strategic partnerships with tech giants like Salesforce and Microsoft enhance DocuSign’s offerings and access to broader clientele. Given the positive market sentiment, strong collaborations, and an ability to penetrate an untapped market, DocuSign poses as an attractive choice for investors seeking growth and opportunities in the digital landscape.
Currently, DOCU has a Zacks Rank #1 (Strong Buy). To view the complete list of Zacks #1 Rank stocks, click here.
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