Cloud-based software provider DocuSign, Inc. (DOCU) is known primarily for its DocuSign eSignature solution and Agreement Cloud. 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.

DOCU’s total revenue for its fiscal third quarter, ended October 31, 2021, increased 42.4% year-over-year to $545.46 million. Its net loss came in at $5.68 million compared to $58.49 million in the year-ago period. Also, its billings were $565.20 million, up 28% year-over-year. However, the stock declined by 42% on Friday, its biggest retreat ever, amid concerns of slowing demand for e-signatures as businesses return to their offices.

The company’s billings and revenue guidance missed expectations. Its $557 million - $563 million fourth-quarter revenue projection was below Wall Street’s expectations. Consequently, several analysts downgraded DOCU’s ratings. In addition, hedge fund’s interest in the stock has declined. So, DOCU’s near-term prospects look uncertain.

Click here to check out our Cloud Computing Industry Report for 2021

Here is what could shape DOCU’s performance in the near term:

Consistent Product and Services Innovations

In November 2021, DOCU enhanced DocuSign Notary so administrators could manage the availability of first-party notaries. The company announced an expansion of its global strategic partnership with salesforce.com, inc. (CRM) on October 27 to build new solutions to improve the customer experience of preparing, signing, and managing agreements, drive faster ROI, and increase collaboration among organizations with Slack functionality.

Ongoing Investigations

Several law firms have launched investigations against DOCU on possible securities law violations in connection with its management’s statements about its growth prospects. On September 2, DOCU and its management assured investors of continued billings and revenue growth. However, on December 2, these statements were brought into question when the company announced that it sustained a significant deceleration in billings growth during its fiscal third quarter that would continue into the fourth quarter.

Stretched Valuation

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.

POWR Ratings Reflect Uncertain Near-Term Prospects

DOCU has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DOCU has a C grade for Sentiment, which is in sync with unfavorable analysts’ sentiment.

The stock has a C grade for Momentum, consistent with its 52.3% loss over the past month and 56.4% over the past three months.

And DOCU has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

DOCU is ranked #61 of 169 stocks in the Software – Application industry. Also, click here to see the additional POWR Ratings for DOCU (Stability, Growth, and Quality).

Bottom Line

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.

How Does DocuSign (DOCU) Stack Up Against its Peers?

While DOCU has an overall POWR Rating of C, one might want to consider investing in Software - Application stocks with an A (Strong Buy) rating, such as Commvault Systems, Inc. (CVLT), Open Text Corporation (OTEX), and Progress Software Corporation (PRGS).

Click here to check out our Software Industry Report for 2021

DOCU shares fell $1.70 (-1.26%) in premarket trading Monday. Year-to-date, DOCU has declined -39.23%, versus a 22.46% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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