Over the past 2 years, we’ve seen a multitude of pandemic success stories. Zoom, for example, flourished during lockdown but has since begun a freefall towards the bottom. And, the same is true for DocuSign – a company that soared as COVID-19 restrictions prevented businesses from interacting face-to-face. The digital signature company saw its stock reach a high of $314/share just over a year ago in early August 2021. But that’s where the good news ends for DOCU.
Since then, the company’s stock has fallen back to earth. Today, the stock sits at just $56 – a fraction of what it once was. In 2022, the company earned the embarrassing title of one of the NASDAQ’s top decliners. Down 80% in the past year, investors and analysts alike are left wondering – what went wrong? While EPS was expected to come in at around $0.42/share, it’s rumored that this figure will fall short by at least $0.03/share. Anytime a company misses guidance it spells trouble for the stock’s price – even if they still report solid financial news. However, DocuSign in particular has shown that it’s subject to big movements – both positive and negative – after earnings in particular.
The fact of the matter is that DocuSign itself hasn’t necessarily done anything to contribute to this downfall. They’re experiencing the same fate as other companies like Zoom, DoorDash, Netflix, and other big pandemic winners: they’re facing a return to normalcy. All of these stocks were significantly overvalued (6x for Docusign) and were never worth anything near those inflated prices. While COVID-19 is still very much a reality, in-person meetings have returned. While there’s no doubt that digital business is going to continue to grow over the coming years, DocuSign has felt the effects of loosening demand for its offerings.
To provide more context, DocuSign doesn’t just offer digital signature products. The company has worked to expand its offerings in an effort to push for more growth. Today, they offer a full suite of digital document solutions for assessing, negotiating, and closing deals remotely. The convenience and automation that DocuSign allows businesses to attain are especially important for international collaborations. Even in a world where we can meet face to face once again, it is more convenient to get the details done digitally – especially for businesses that aren’t local to each other.
So then why is DocuSign struggling? Analysts believe that their growth during the pandemic set the bar too high. While the company is still doing well financially speaking, it’s very unlikely it’ll reach its peak stock price of $300+ per share again. Instead, they’ve returned to the level they were at pre-pandemic. This has caused negative investor sentiment and led to continued downward pressure on the stock’s price. But – is it just another case of investor sentiment turning into reality? OR – is the concern around DOCU warranted? Let’s take a look at three crucial insights from the VectorVest stock analysis system.
Is Now the Time to Buy, Sell, or Continue Holding DOCU?
The VectorVest system ranks and rates stocks based on a proprietary system that boils down analysis to three simple ratings: Relative Value (RV), Relative Safety (RS), and Relative Timing (RT). These sit on a scale of 0.00-2.00 and tell investors everything they really need to know about a stock to make informed & emotionless decisions. Based on the overall VST rating a stock is given, our system gives a clear buy, sell, or hold recommendation. Here’s the scoop on DOCU:
- Average Upside Potential: The RV rating speaks to a stock’s upside potential. It’s computed based on projected price appreciation 3 years out, AAA corporate bond rates, and risk. As for DOCU, the RV rating of 0.85 is slightly below the average of 1.00 – and is just fair. While the stock is overvalued at its current price (VectorVest calculates a true value closer to $23), the stock does show an excellent forecasted earnings growth rate of 28%.
- Poor Safety: The RV rating is an indicator of risk – and indicates how consistent and predictable a company’s financial performance is. It also takes into account business longevity, price volatility, debt-to-equity – and more. As for DOCU, the RS rating it has earned of 0.71 is poor. This is coupled with a very poor CI (comfort index), which suggests that DOCU has an inability to withstand severe or lengthy price declines.
- Poor Timing: Finally, the RT rating for DOCU is poor at just 0.64. This rating is calculated based on a deep analysis of the dynamics, direction, and magnitude of a company’s stock price. We can safely assume based on this rating that the downward pressure on DocuSign’s stock price will continue for the foreseeable future.
All this considered, DOCU has a poor VST rating of just 0.73 – below the average of 1.00. But does this mean it’s time to sell – or should you continue holding your position until the noise settles from the pending 2nd quarter earnings report? Speculative investors may wonder if now is a good time to buy – or if they should wait a bit longer for the price to drop further and the stock becomes a better value-buy. The answer may surprise you. Get a free stock analysis here to see the exclusive buy, sell, or hold recommendation VectorVest has for DOCU.
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for DOCU, it has fair upside potential but poor safety and timing.
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