DocuSign (DOCU -2.35%) bears were hibernating during the more acute phases of the pandemic. The stock went on a tear, rising to over $300 per share at its peak in late 2021. That trend has been reversed, and bulls are now hiding out as the stock has fallen to $110 as of this writing.
Nevertheless, it is informative to consider both sides of the argument when making an investment decision. What follows are the bull and bear cases for investing in DocuSign stock.
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The bull case for DocuSign
DocuSign is an efficient alternative for businesses that regularly need to have agreements signed. Organizations can use DocuSign's emailed solution instead of printing mountains of paper and meeting signors at the office or at their homes to put pen to paper. That could save business costs on personnel, materials, and storage.
That can partly explain why DocuSign has reached 1.1 million customers and has grown revenue rapidly over the years. Indeed, from 2016 to 2022, DocuSign has expanded revenue from $250 million to $2.1 billion. Its core service offers a digital document signing solution, but it is not resting on its laurels. DocuSign encourages its customers to sign up for its full suite of services, including preparing, signing, managing, and storing agreements.
During that time, DocuSign has saved 55 billion pieces of paper and six million trees. The company embodies the saying "doing well by doing good." That can go a long way in attracting shareholders who are interested in using their dollars to make a positive impact on the planet.
The bear argument
The bears will not argue against DocuSign's impressive growth or its positive impact on the planet. They will concede those facts and focus instead on DocuSign's challenges ahead. The coronavirus pandemic made using DocuSign's services a near no-brainer for many organizations. In its aftermath, that's not going to be the case. Management is already bracing for this, forecasting revenue growth of just 17.5% at the midpoint in fiscal 2023. To put that figure into context, the lowest revenue growth rate for DocuSign in the last six years was 35.2% in 2019.
Legal documents are a sensitive issue for organizations, and they are not swift in deciding to switch to a new method. Customer acquisition is a costly and time-consuming endeavor, evident in DocuSign's income statement. In its three previous fiscal years, sales and marketing were its most significant expense, taking a 51% bite out of revenue in the year ended January 2022.
The spending on salesforce, advertising, and commissions lead to operating losses at DocuSign. From 2016 to 2022, the company has failed to generate operating income. Bears will argue the ability of DocuSign to deliver profits on the bottom line.
The bears are winning the argument most recently, and DocuSign's stock is down 66% off its high. However, the selling may be overdone for a company that analysts expect to grow roughly 45% annually for the next five years despite its slowing revenue growth projections. The company will undoubtedly experience volatility as the world figures out what the new standard working solutions will be post-pandemic. Still, the sell-off gives long-term investors an opportunity to buy this excellent growth stock at a lower price.
