Among the work-from-home era stocks that rose and fell is DocuSign (DOCU -0.48%), the e-signature software company. Although the stock was stellar in 2020 and 2021, it has been atrocious since then, and sits 85% down from its all-time high.

After reporting Q2 of FY 2024 results, the stock didn't fare well, and dropped around 4%. So is this weakness the time to buy DocuSign's stock? Or is there something else going on here? Let's find out.

DocuSign is seeing almost no growth from existing clients

DocuSign's suite of e-signature products transitioned from nice-to-have before 2020 to must-have when entities could no longer sign binding contracts in person. Although many people have returned to face-to-face meetings, the convenience of signing documents digitally has remained. As a result, DocuSign's customer base hasn't dropped the product, but it has been difficult to get this existing base to increase its usage into ancillary products like contract life-cycle management or document generation.

Nothing about this sentiment changed during Q2 of FY 2024 (ending July 31). DocuSign's dollar net retention rate was only 102% for the quarter. This means that existing customers only spent $102 for every $100 they spent last year, which is a big concern. This conveys two things: First, DocuSign has little pricing power, as most products have hiked their prices by more than 2% in 2023. Second, existing clients are not expanding their usage of other DocuSign products.

However, management pointed out that macroeconomic pressures are to blame here, as clients hesitated to purchase add-ons because they are unsure about what business will look like over the next year.

But if existing clients didn't help DocuSign grow in Q2, how did it increase its revenue by 11%? It all has to do with new customers.

In Q2, DocuSign added 37,000 new customers, which increased its base by 12% to 1.44 million. With customer growth nearly equal to revenue growth, it's obvious where DocuSign's growth came from. But this reveals a potential investment catalyst for DocuSign.

Because DocuSign is growing its customer base again, it could create a dual-headed growth machine between new client additions and existing customer expansion once budgets increase as the economy strengthens. If DocuSign can do that, it may be considered a top growth stock to own again.

Unfortunately, it looks like this may be a one-quarter result.

The stock is cheap for a reason

For Q3 FY 2024 (ending October 31), DocuSign's management expects $689 million in revenue, a 7% increase from last year. To be fair, management only expected $679 million in revenue for Q2 on the high end, yet delivered a $688 million result when results came out. But if DocuSign can deliver a similar beat in Q3, it will only increase its growth rate to 8%.

That's not market-beating growth, and when a growth stock isn't growing above market average and is barely profitable (DocuSign posted a $0.04 profit in earnings per share), investors don't want anything to do with the stock. That's why the stock trades at such a cheap price.

DOCU PS Ratio Chart

DOCU PS Ratio data by YCharts

While DocuSign may look like a steal at 4 times sales compared to its software peers, which often trade between 10 to 20 times sales, it has earned its discount for a reason. Now, if DocuSign can reignite its sales growth in 2024, I'd expect the stock to rise rapidly due to multiple expansions (when investors are willing to pay more for a stock on a valuation basis). However, that's a big if, and it would require growing its customer base and getting clients to adopt more products.

DocuSign has already proven that clients do not see its additional products as must-haves, so this may be a one-time boost if it happens. As a result, I'm not confident in DocuSign's long-term prospects, as it may be a one-time growth catalyst if spending opens up next year. While DocuSign posted a solid Q2, it will take multiple consecutive quarters of success to get me interested in the stock again.