Ignore the Bearish Calls and Go Long on DocuSign

DocuSign (NASDAQ:DOCU) was one of the major benefactors of the pandemic. The cloud-based e-signature provider was a major hit with people looking to conduct business while being socially distanced. DOCU stock, however, has performed dismally in the past year, losing more than 50% of its value. Moreover, investors are worried about how it will fare in the post-pandemic world, further weighing down the stock.

Recency bias has shrouded investor judgment for years, and that seems to be the case with DOCU stock. DocuSign has been one of the most consistent performers among its peers over the past several years. Its five-year average top-line growth rate is at a staggering 43.4% on a year-over-year basis.

Moreover, its diversified product offerings are likely to continue performing at an impressive pace. Hence, DocuSign will thrive regardless of the pandemic.

DocuSign’s Solid Third Quarter

As discussed earlier, DocuSign has performed tremendously over the past several years. During its most recent quarter, its year-over-year (YOY) revenue grew by a remarkable 42%. This was driven by 45% YOY growth in its enterprise and commercial client base. Its revenue growth has improved sequentially since the start of 2019.

Additionally, during the quarter, its gross margins of 79% came in five percentage points higher than the same period last year. Moreover, its net losses shrank by about $44 million from the prior-year quarter. DocuSign’s subscription revenues came in at a record $529 million for the quarter.

The company’s customer base has grown at an astonishing pace over the past couple of years. It ended the third quarter with 1.1 million customers, representing a 34% improvement from the prior-year period.

Nevertheless, its growth rates have slowed compared to some of its previous quarters. Naturally, due to the tough comps, DocuSign’s upcoming earnings results may limit its attractiveness as an investment. However, the company’s long-term case remains intact with its spectacular customer growth.

Long-Term Prospects Remain Solid

DocuSign will benefit immensely from the growing trend of business digitization. The company already has an impressive 70% market share in its sector, continuing to expand with its partnerships. Moreover, according to McKinsey, approximately 20% to 25% of the workforce in the post-pandemic era will telework between three to five days per week.

Additionally, the company is diversifying its platform. Its contract lifecycle management (CLM) software effectively automates manual tasks and minimizes risks through robust smart contract management.

Moreover, DocuSign has roughly doubled its customer count in its CLM segment in the past couple of years. Though CLM contributes a relatively small portion to its revenue, it could have a material impact on DocuSign’s figures down the line. CLM results in cost savings, revenue management and other improvements for companies of all sizes.

International expansion is another aspect that could play a major role in the enterprise’s growth. Currently, the majority of DocuSign’s sales are generated from the United States. However, with the digital transformation tailwinds across different markets, DocuSign has an incredible growth opportunity across the globe.

What to Do With DOCU Stock

DocuSign has plenty of depth and utility in its product offerings, which should play a major role in the increasingly digital landscape. It offers solutions that create massive value and efficiency for some of the largest enterprises in the world.

Some of its growth drivers include its international expansion opportunity and the growth of CLM and other services. These opportunities could result in a colossal increase in its top-line growth moving forward. Additionally, DOCU stock traded at just 10.5 times forward sales as of Feb. 2, which is a level it hasn’t touched since spring 2020.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.