If You'd Invested $3,000 in DocuSign in 2018, This Is How Much You Would Have Today

DocuSign (DOCU 0.10%), the market leader in e-signature services, went public at $29 per share on April 27, 2018. The stock started trading at $38 and soared to an all-time high of $310.05 on Sept. 3, 2021, but now trades at just $59 a share.

So if you had invested $3,000 in its IPO, you would have watched your investment blossom to over $32,000 before withering to around $6,000 today. Let's see why DocuSign's stock crashed -- and if it can ever revisit its all-time highs.

Image source: Getty Images.

When a hypergrowth stock stops growing

DocuSign controls about 70% of the e-signature services market and serves 1.36 million paying customers. Between fiscal 2019 and fiscal 2023 (which ended on Jan. 31), its annual billings rose at a compound annual growth rate (CAGR) of 35% as its annual revenue grew at a CAGR of 37%.

Data source: DocuSign.

DocuSign's growth accelerated in fiscal 2021 as the pandemic drove more people to work remotely and sign digital contracts. But its growth decelerated in fiscal 2022 as it lapped the pandemic, and it lost more momentum throughout fiscal 2023 as its enterprise customers reined in their spending to cope with the macro headwinds.

DocuSign expects that slowdown to persist with just 0%-1% billings growth and 8% revenue growth in fiscal 2024. That grim outlook, along with the departure of CEO Dan Springer last June and the pressure of rising rates on growth stocks, drove away most of the bulls.

Another issue was DocuSign's valuation. At its all-time high, its enterprise value reached $60.9 billion -- or 29 times the revenue it would generate in fiscal 2022 -- as speculative investors piled into meme and hyper-growth stocks.

That bubbly valuation made DocuSign an easy target for the bears as the macro challenges drove investors toward more conservative investments. But today its stock looks more reasonably valued at less than 4 times its estimated sales for fiscal 2024.

Focusing on long-term profits instead of near-term growth

DocuSign's top-line growth is cooling off, but its adjusted gross and operating margins both improved significantly over the past several years.

Data source: DocuSign.

For fiscal 2024 it expects that trend to continue with an adjusted gross margin of 81%-82% and an adjusted operating margin of 21%-23%. Those expanding margins, which it attributes to its ongoing cost-cutting efforts, suggest its scale is improving and its pricing power isn't necessarily fading against competing services like Adobe Sign and Dropbox Sign (formerly known as HelloSign).

CEO Allan Thygesen, who took the top job last October, plans to widen DocuSign's moat with new AI features, tighter integrations with Microsoft Teams, Zoom Video Communications, Salesforce's Slack, and other collaborative software, and expansions into more overseas markets. However, that could be a tough balancing act to pull off as its top-line growth stalls out and it continues to cut costs and shrink its workforce. The upcoming departure of its CFO Cynthia Gaylor, who had held that job over the past four years, could further complicate those long-term plans.

Will it ever revisit its all-time highs?

Analysts expect DocuSign's revenue to grow at a CAGR of just 7% from fiscal 2023 to fiscal 2025, which suggests its high-growth days are over. We should take those estimates with a grain of salt, but it's doubtful that DocuSign's stock will surge more than 425% and eclipse its all-time highs within the next two years.

I'm not saying DocuSign will never trade in the $300s again, but it could take a very long time to reach those levels at sustainable valuations. That might be a rude awakening for investors who bought the stock in 2018 and didn't sell during the meme stock mania in 2021. But on the bright side, it's still more than doubled from its IPO price in less than five years.