After losing more than 80% of their value in less than a year, shares of DocuSign (DOCU -1.76%) are trading at a more sensible valuation than investors are used to seeing. Now that this high-growth stock has been pressed down to value stock prices it could be a good time to buy.

DocuSign's latest big fall was a response to a disappointing forward outlook the company shared with investors recently. On closer inspection, though, the company's long-term outlook is a lot better than its stock price performance suggests.

Let's weigh the good news against the bad to see if buying DocuSign stock at its new, more reasonable valuation makes sense right now.

Reasons to remain cautious

The company's CEO, Dan Springer, recently stepped down to make room for new leadership. The disappointing first-quarter earnings report he delivered a couple of weeks earlier pushed the stock about 25% lower in a single trading session.

Board Chairman Mary Agnes Wilderotter will serve as interim CEO while the company searches for a new leader. Wilderotter spent over a decade at the helm of Frontier Communications. Unfortunately, we still don't know if her previous experience will help this company maintain its lead in the agreement services space. 

When reporting first-quarter results, DocuSign had to walk back its forecast for sales to new customers plus subscription renewals, a metric the company refers to as billings. Instead of between $2.706 billion and $2.726 billion, the company expects billings to fall between $2.521 billion and $2.541 billion for its fiscal year that ends Jan. 31, 2023. Hitting the midpoint of this revised range would translate to a growth rate of just 3% year over year.

The slowdown could be caused by competition from a slew of small start-ups and a big contender. Adobe (ADBE -0.27%), the company that invented the portable document format (PDF), runs a competing e-signature service. Since Adobe's software subscriptions are a must-have for all manner of creative endeavors, getting these customers to choose DocuSign could become an uphill battle. 

DocuSign shares have fallen hard, but they're still trading at around 36.6 times forward-looking earnings expectations. That's a reasonable multiple for a company with a double-digit growth rate, not one that's struggling. If the company flashes any more signs of stagnation ahead, this stock could tumble a lot further.

Reasons to buy DocuSign

Springer's abrupt departure is disturbing, but it tells us that DocuSign's board of directors is taking its corporate governance role seriously. The board didn't stop with Springer, either. A handful of new members on the executive team could help the company maintain its leading share of the market for agreement services.

While the stagnation we're seeing could be caused by competing services that keep popping up like dandelions, it could also be a case of pandemic pull forward. Businesses that weren't accustomed to working with clients at a distance had to scramble for solutions during the pandemic's early days. Now that most of us are back to business as usual, we probably should expect at least some of those businesses to cancel their subscriptions.

For many of DocuSign's customers, turning to a lower-priced competitor isn't worth the high switching costs that would follow. One of the brand's selling points is easy integration with software from Microsoft, Salesforce, and a growing list of vendors.

DocuSign generated $497 million in free cash flow over the past year. This means the company has the resources it needs to stay one step ahead of the competition.

A buy now?

The market for e-signature services hit an estimated $3 billion in 2021 and is expected to reach $35 billion by 2029. Despite dozens of smaller competitors, DocuSign still has an 80% share of the market for e-signature services. 

If DocuSign can retain even half of its present market share, its shareholders will come out way ahead in the long run. Instead of buying this volatile stock now, though, it's probably a good idea to wait a few quarters to make sure the company's reshuffled management team is up to the task.