Shares of DocuSign (DOCU -4.12%) surged higher on Friday as investors cheered the company's strong fiscal second-quarter results. Analysts raved about the company's progress, with at least eight of them raising their 12-month price targets for the growth stockUBS analyst Karl Keirstead, for instance, reiterated a buy rating on the stock and boosted his 12-month price target for shares from $340 to $350, noting that the company looks poised to sustain high growth rates for a long time. Needham analyst Scott Berg, who raised his 12-month price target from $275 to $340 after the report, noted that the company's revenue growth deceleration amid a reopening economy was much slower than expected. 

Are analysts right to be so bullish on this stock?

DocuSign's e-signature product on a laptop and smartphone.

Image source: DocuSign.

The e-signature boom continues

Investors were worried DocuSign's revenue would see a dramatic deceleration as the economy reopens and more people start working face to face. After all, video collaboration platform provider Zoom Video Communications (ZM -2.12%) announced earlier this week that its revenue growth decelerated from 191% in the first quarter of fiscal 2022 to 54% in its just-reported quarter. 

DocuSign's top-line growth did decelerate, but not nearly as meaningfully as Zoom's did. The e-signature specialist's fiscal second-quarter revenue grew 50% year over year to about $512 million. This performance compared with 58% growth in fiscal Q1. 

DocuSign said it is now helping over 1 million customers and over 1 billion users. The underlying catalysts driving this business are alive and well.

"Organizations of all types and sizes are leveraging the power of the Agreement Cloud to digitize the most foundational process of doing business -- the agreement process -- starting with eSignature," said DocuSign CEO Dan Springer in the company's earnings release. "In partnership with our customers, we are eliminating paper, automating end-to-end agreement processes, and enabling better experiences in the anywhere economy."

Impressive operating leverage

While the company's enduring growth story is almost enough in and of itself to make the stock a buy at its current valuation, what really drives home the stock's value proposition is the underlying business' strong operating leverage. This was particularly evident in DocuSign's fiscal second-quarter results.

Combining the company's rapid revenue growth and its scalable business model, DocuSign's operating margin improved from negative 17% to negative 4% as the company works to be profitable on a GAAP basis. Its non-GAAP (adjusted) operating margin was positive 19% -- up from 10% in the year-ago quarter.

Also highlighting the company's improving profitability is its improving free cash flow, or cash from operations less capital expenditures. DocuSign's fiscal second-quarter free cash flow was about $162 million, up from about $100 million in the same period last year.

While no investment is without risk, DocuSign shares do look attractive after a strong fiscal second-quarter report. Sure, investors should expect a bumpy ride. But this looks like a stock that could reward shareholders nicely over the long haul.