What happened

Shares of DocuSign (NASDAQ:DOCU) got shredded on Friday, but got taped back together on Monday -- to an extent. As of 11:35 a.m. ET, shares of the e-signature service are up 7% from Friday's close.

And you can thank ARK Invest CEO Cathie Wood for that.

Two people look at a laptop.

Image source: Getty Images.

So what

DocuSign posted impressive fiscal third-quarter 2022 results last week -- sales up 42% year over year and earnings up 163%. Nevertheless, investors sold off the stock on DocuSign's warning that fourth-quarter growth won't be quite as robust.

Sales in Q4 are expected to grow "only" about 29%, with billings growth decelerating similarly. While in any other company that would be impressive growth, DocuSign investors have gotten spoiled by the company's rapid-fire growth reports of late, and were spooked by the "bad" news.

Or rather, most investors were spooked. Today we learned that as DocuSign stock tumbled Friday, famed growth investor Cathie Wood was buying DocuSign shares hands over fist for her flagship ARK Innovation ETF (NYSEMKT:ARKK), for the ARK Next Generation Internet ETF (NYSEMKT:ARKW), and for the Ark Fintech Innovation ETF (NYSEMKT:ARKF). In total, Wood's several ARK funds snapped up 747,000 DocuSign shares as the stock went on sale.  

Now what

Investors who shorted DocuSign on worries that at 20-something times sales, the stock looked too pricy, are taking Wood's buying as their cue to close their short positions against the stock. Bottom fishers, too, are taking the tech investing legend's optimism as a sign that the sell-off has given them a second bite at the DocuSign apple -- a chance to buy in at prices last seen back in the summer of 2020.

Is this the right call? Is now the time to buy?

Maybe it is. Just be aware if you do so, that you're investing in a stock with great long term-prospects but no history of earning profits from its business, and a still-high valuation of about 15 times trailing sales. True, DocuSign does generate hefty helpings of positive free cash flow (FCF) -- $418 million over the past 12 months according to data from S&P Global Market Intelligence. But even valued on FCF, the stock sells for a sky-high 63.5 times multiple.

DocuSign may be a whole lot cheaper this week than it was on Thursday, but it's still not a cheap stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.