What happened

Shares of DocuSign (DOCU -1.99%) slumped in early trading Monday, falling by as much as 5%. As of 1:12 p.m. ET, the stock was down by 3.7%.

The catalyst that sent the tech stock lower was an analyst's downgrade that pointed to increasing challenges for the company, at least in the short term.

So what

RBC Capital analyst Rishi Jaluria downgraded DocuSign stock to sector perform (hold) from outperform (buy), and lowered his price target from $80 down to $65, according to The Fly. The stock closed trading Friday at $65.92. 

In his research note, Jaluria says he is "cautiously optimistic," but suggests the weaker macro environment will likely weigh on the stock when the company reports its fiscal 2023 second-quarter results after the market close on Sept. 8. 

This view is driven by the challenges facing the software sector, though Jaluria also cites DocuSign's leadership transition as a cause for concern. The company announced the exit of CEO Dan Springer in late June; the search for his replacement is ongoing. 

"We still do believe in the long-term thesis for DocuSign," the analyst said, but suggested any meaningful rebound in the company's financial performance (and its stock price) would be delayed until after the company gets a new permanent CEO.  

Now what

DocuSign stock flourished during the earlier phases of the pandemic as lockdowns and remote work increased the need for electronic signature technology. That period's growth spurt has since given way to more measured results. In its fiscal 2023 first quarter, revenues increased by 25% year over year, and adjusted diluted earnings per share declined by 14% to $0.38.

It's important to remember that DocuSign is the undisputed e-signature leader, with an estimated 70% share of the market. Furthermore, the company is expanding its relationships with customers by offering the Agreement Cloud, its contract lifecycle management solution, which expands its total addressable market to roughly $50 billion. 

While its growth has slowed, its opportunity is vast. For investors with an appropriate time horizon, DocuSign stock is still a buy.