Electronic signature (e-sign) provider DocuSign, Inc. (DOCU) became highly popular during the pandemic as it allowed consumers and corporate workers to sign documents electronically.

Tech stocks suffered last year due to the Fed’s aggressive interest rate hikes. DOCU’s shares took a beating, declining 51.8% over the past year. However, the stock has gained 9.4% over the past month and 25.6% over the past three months to close the last trading session at $60.64.

DOCU reported better-than-expected EPS and revenue in the last reported quarter. Its EPS beat the consensus EPS estimate by 34.2%, and its revenue came 2.9% higher than what analysts estimated. DOCU’s CEO, Allan Thygesen, said, “We delivered solid third-quarter results and are pleased with the continued progress against our critical priorities.”

DOCU’s billings rose 17% year-over-year to $659 million in the third quarter, while its non-GAAP operating margin came in at 23%. Its total customers at the end of the third quarter came in at 1.32 million, adding 42K new customers in the last quarter. Its Enterprise & Commercial Customers came in at 202k, compared to 170K in fiscal 2022.

As part of its restructuring plan, the company laid off 9% of its employees in September. The restructuring will cost the company between $30 million to $40 million and is expected to be completed by the end of fiscal 2023.

The company has guided its total revenue for the fourth quarter to come between $637 million and $641 million, showing growth of 10% year-over-year. It expects its total revenue for fiscal 2023 to grow 18% to 19% over the previous year.

DOCU expects a slow start to the fiscal year 2024, with its total revenue growth in the high single digits, while its billings are expected to grow in the low single digits. For the next fiscal year, the company expects to operate at the lower end of its long-term operating margin range of 20% to 25%.

Here's what could influence DOCU’s performance in the upcoming months:

Mixed Financials

DOCU’s total revenue increased 18.3% year-over-year to $645.46 million for the third quarter ended October 31, 2022. The company’s non-GAAP gross profit increased 19.6% year-over-year to $537.66 million. Its non-GAAP subscription profit increased 17.6% year-over-year to $536.06 million. Also, its non-GAAP income from operations increased 20.4% year-over-year to $147.05 million.

On the other hand, DOCU’s non-GAAP net income declined 2.4% year-over-year to $118.13 million. Its non-GAAP EPS came in at $0.57, representing a decline of 1.7% year-over-year.

Mixed Analyst Estimates

Analysts expect DOCU’s EPS for fiscal 2023 to decline 2.6% year-over-year to $1.93. On the other hand, its EPS for fiscal 2024 is expected to increase 11.5% year-over-year to $2.15. Its revenue for fiscal 2023 and 2024 is expected to increase 18.5% and 7.8% year-over-year to $2.50 billion and $2.69 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, DOCU’s 31.45x is 56.4% higher than the 20.11x industry average. Likewise, its 4.83x forward EV/S is 67.5% higher than the 2.88x industry average. And the stock’s 20.90x forward P/B is 403.3% higher than the 4.15x industry average.

Mixed Profitability

In terms of the trailing-12-month EBIT margin, DOCU’s is negative compared to the 6.06% industry average. Its trailing-12-month net income margin is negative compared to the 3.28% industry average.

On the other hand, its 78.38% trailing-12-month gross profit margin is 59.4% higher than the industry average of 49.19%. In addition, its 28.78% trailing-12-month levered FCF margin is 286.6% higher than the industry average of 7.45% industry average.

POWR Ratings Reflect Uncertainty

DOCU has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each 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, in sync with its mixed analyst estimates.

DOCU is ranked #7 out of 25 stocks in the Software - SAAS industry. Click here to access DOCU’s Growth, Value, Momentum, Stability, and Quality ratings.

Bottom Line

DOCU’s third-quarter revenue and earnings came better than expected despite macro headwinds. Although the company’s long-term prospects remain bright, it expects a slower start to the fiscal year 2024, with its operating margin coming in at the lower end of its long-term target as demand softens.

Given its mixed financials, mixed analyst estimates, and mixed profitability, it could be wise to wait for a better entry point in the stock.

How Does DocuSign, Inc. (DOCU) Stack up Against Its Peers?

DOCU has an overall POWR Rating of C, equating to a Neutral rating. Therefore, you might want to consider investing in other Software - SAAS stocks with a B (Buy) rating, such as Park City Group, Inc. (PCYG), The Descartes Systems Group Inc. (DSGX), and Informatica Inc. (INFA).

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

Yes, some special stocks may go up. But most will tumble as the bear market claws ever lower.

That is why you need to discover the brand new “Stock Trading Plan for 2023” created by 40-year investment veteran Steve Reitmeister. There he explains:

• Why it's still a bear market
• How low stocks will go
• 9 simple trades to profit on the way down
• Bonus: 2 trades with 100%+ upside when the bull market returns

You owe it to yourself to watch this timely presentation before placing your next trade.

Stock Trading Plan for 2023 > 

DOCU shares rose $0.26 (+0.43%) in premarket trading Wednesday. Year-to-date, DOCU has gained 9.89%, versus a 5.91% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

More...