What happened
Shares of DocuSign (DOCU +0.20%) were pulling back today after one Wall Street analyst slapped a sell rating on the e-signature software specialist, the latest sign that DocuSign will struggle to return to its heights during the pandemic.
As of 10:38 a.m., the SaaS stock was down 9.2%.
Image source: Getty Images.
So what
UBS analyst Karl Keirstead downgraded his rating on DocuSign from neutral to sell, noting that the company just announced its second round of layoffs in just a few months, a sign the business is likely to be challenged into fiscal 2024, which ends next January. Keirstead said those headwinds may not be factored in the current stock price, and that its free cash flow is weak compared to other low-growth software stocks.
Keirstead gave the stock a price target of $52, representing a 19% decline from its closing price on Friday.
A sell-off in the broad market after downbeat reports from retail titans Walmart and Home Depot also seemed to weigh on DocuSign, as other tech stocks fell on increasing estimates of a recession.
NASDAQ: DOCU
Key Data Points
Now what
DocuSign has yet to report fourth-quarter earnings, but the company just last week said it would reduce its workforce by another 10%, taking a charge of $25 million to $35 million on the news.
The stock actually rose on this news as investors reacted positively to its efforts to cut costs, but it does show that its fourth-quarter results are likely to be weak when it reports them on March 9.
Analysts are expecting revenue to increase 9% to $633.2 million, and for adjusted earnings per share to tick up from $0.48 to $0.52.
While Docusign's valuation is reasonable, its growth rate is likely to be modest for the foreseeable future due to the pull-forward effect of the pandemic and the macroeconomic climate. Investors should dial down their expectations for this previous highflier.
