DocuSign (DOCU +2.67%) is primarily an electronic signature services business. Unsurprisingly, it thrived during the lockdown phases of the pandemic when governments placed restrictions on non-essential businesses.
That tailwind is reversing as economic reopening is gaining momentum worldwide. As a result, DocuSign's stock is down 80% off its highs from last year. The lower stock price has many investors curious if it's an excellent time to buy DocuSign stock.
NASDAQ: DOCU
Key Data Points
DocuSign saves consumers and businesses time and resources
It's clear that the pandemic bolstered the need for businesses to choose DocuSign over putting pen to paper. Although, social distancing is not the only advantage in favor of DocuSign. The company offers convenience to both enterprises and individuals. Signing a document in person could take as little as a few seconds, depending on how many pages need to be signed and the complexity of the contract.
In those repetitive, less-complex situations, it makes little sense to force the signer to commute to the office to sign the document. Sure, you could mail the documents to the client, have them sign, and then return them, but that process could take several days with the speediest of mail delivery options.
From the corporation's perspective, an electronic signature solution is less resource-intensive for the organization. It reduces the need to have physical space designated to store signed documents. Additionally, it removes the need to have staff greet signers and walk them through the process of signing documents.
Finally, DocuSign benefits the planet by keeping trees alive that would otherwise be chopped down to become paper products. Fortunately for DocuSign, individuals, enterprises, and institutions increasingly prioritize preserving the earth.
DOCU Cash from Operations (Annual) data by YCharts.
Those advantages explain how DocuSign grew revenue from $250 million in 2016 to $2.1 billion in its most recently completed fiscal year. The company is not yet profitable on the bottom line, but DocuSign's cash from operations is rising briskly. Indeed, in its most recent quarter, which ended on April 30, DocuSign's cash flow from operations increased to $196.3 million from $135.6 million in the same quarter in the prior year.
DocuSign's stock is inexpensive right now
DOCU Price to Free Cash Flow data by YCharts.
DocuSign is selling at a price-to-free-cash-flow ratio of 25, as cheap as it's been in the last several years. This comes as DocuSign has expanded its cash flow from operations. One reason for the discounted valuation is that investors are concerned about the headwinds of the economic reopening.
DocuSign forecasts slower revenue growth in the near term as social distancing is scarce after billions of folks have become vaccinated against COVID-19. However, the worries over the near-term headwinds can be an opportunity for long-term investors to scoop up shares of this excellent business at a bargain price. The longer-run advantages that save businesses and consumers time and money are unlikely to reverse.
