DocuSign's (DOCU 1.02%) stock was a pandemic darling that turned on investors. The need for housebound clients to sign documents drove the company's revenue for a time, but that gave way to slowing growth as demand cratered after the end of lockdowns.
That decline changed the investment thesis for DocuSign. So did the company's lower valuation and continued business growth. The question for investors is whether a post-pandemic DocuSign can now drive better returns for the software-as-a-service (SaaS) stock.
The state of DocuSign's business
Even those holding long positions probably have to admit that DocuSign's current state was inevitable. The lockdowns were not likely to last forever, and once they ended, the company's e-signature products would not sell as easily. That factor seemed lost on former CEO Dan Springer, and that lapse in judgment likely led to his departure. Now, DocuSign's board has hired Allan Thygesen -- who once led the marketing and advertising divisions at Alphabet's Google -- as its new CEO.
Thygesen might need that experience to address the challenges he now faces. For one, DocuSign's share of the e-signature market -- which stands at 78%, according to Datanyze -- may not be as significant as it appears. E-signatures have become commoditized, meaning that customers who need a simple e-signature service can choose from multiple providers. Still, DocuSign also offers something called DocuSign CLM, an enterprise package that helps larger clients manage the entire product life cycle of their documentation. This market has fewer competitors, though Adobe's Document Cloud could present a challenge.
To encourage enrollment, DocuSign has split its CLM product into smaller packages to attract more users. It calls its starter package CLM Essentials, a scaled-down CLM. This version could potentially induce customers to upgrade to more-advanced versions of the agreement cloud as their needs for CLM services increase.
The company also has emphasized further international expansion. DocuSign has driven increased sales in Canada, Western Europe, Brazil, and Australia, and revenue growth in those markets has collectively exceeded that in the U.S.
DocuSign's financials
And despite the pessimism, revenue continues to rise. It was nearly $1.9 billion for the first nine months of fiscal 2022 (ended Oct. 31), up 22% from the same period in fiscal 2021. However, losses increased during that time frame, surging to $102 million as operating expenses rose 26%.
The stock's performance also was mixed. Shares have lost more than 80% of their value since peaking in the summer of 2021. But they might have bottomed out, rising about 40% since reaching a low in November.
Moreover, its price-to-sales (P/S) ratio has fallen below 5. Considering it spiked above 40 during the pandemic, it looks like a relative bargain. It appears cheaper than Adobe, which trades at a 9 P/S, though unlike DocuSign, Adobe is consistently profitable.
Should you buy DocuSign?
At current prices, DocuSign might have turned into a buy. It was probably overvalued 18 months ago, and an end to lockdowns brought about an inevitable decline in an increasingly competitive e-signature market.
The stock has fallen to a relatively cheap valuation today, and the company's Agreement Cloud gives DocuSign an ecosystem that will appeal to its largest customers. Such factors could drive the stock higher in the longer term.
