Shares of DocuSign (DOCU -0.97%) fell around 17% the morning after the company reported earnings from its fiscal fourth quarter ended Jan. 31, 2023. The growth it just reported was relatively impressive, but management is predicting a slowdown in the quarters ahead.

Investment bank analysts have downgraded DocuSign in response to its soft outlook. Is now the right time to sell the stock? Before making any knee-jerk decisions that you could live to regret, let's weigh the bad news against the good.

A poorly received forecast

Pandemic-related lockdowns accelerated growth a couple of years ago. Despite the difficult comparison, total revenue rose 14% year over year during DocuSign's fiscal fourth quarter.

Unfortunately, growth is subsiding. Fiscal fourth-quarter billings, a metric that reflects amounts invoiced to customers during the period, rose just 10% year over year. According to management, things will get worse before they get better.

  FQ2 2023 FQ2 2024 Guidance Midpoint Change Fiscal 2023 Fiscal 2024 Guidance Midpoint Change
Total revenue $622 million $641 million 3% $2.5 billion $2.7 billion 7%
Billings $647 million $620 million (4%) $2.7 billion $2.7 billion 0%

Data source: DocuSign. FQ2 = fiscal second quarter. Chart by author.

DocuSign predicts a 4% contraction in billings during the fiscal second quarter ending April 30. Management expects billings to pick up again slightly in the second half to end the year flat.

Measuring DocuSign's performance against its toughest competitor, Adobe (ADBE -2.10%), is a little challenging because they've adopted fiscal years that don't coincide. That said, it looks like Adobe is slowly taking market share from DocuSign.

During Adobe's fiscal fourth quarter ended Dec. 2, 2022, revenue from its Document Cloud segment rose 16% year over year to $619 million. That's just $50 million less than the total revenue DocuSign reported in its fiscal fourth quarter, which ended nearly two months later.

Adobe will report results from its fiscal first quarter on March 15. When it does, DocuSign investors want to carefully measure Adobe's Document Cloud segment performance against DocuSign's.

Time to sell?

Shares of DocuSign are more than 83% off their peak but could fall much further if billings stagnate beyond fiscal 2024 or begin to contract. At recent prices, the stock is trading at 26.1 times adjusted earnings that reached $2.03 per share in fiscal 2023.

The current year won't be DocuSign's finest, but investors who sell now might live to regret it. A great deal of growth down the road could push the stock to new heights.

DocuSign measures its addressable market for e-signatures at around $25 billion annually. Add-on services -- like support for identity verification, notarization, and contract lifecycle management -- could be worth another $25 billion annually. Put it together, and this business looks like it still has a lot of room to grow.

Investors probably should be worried about Adobe's Document Cloud service gaining market share from DocuSign. Fortunately, there's an easy solution. Just add some Adobe shares to your portfolio, too.

Remember, there's no cap on how high stock prices can rise, but they can only fall to zero. Using a basket-of-stocks approach, you could still realize market-beating returns if either is the market leader for agreement services a decade from now.