Many stocks have seen this same pattern: They soared in the early stages of the pandemic only to end up crashing in 2022.
DocuSign (DOCU +0.20%) is one such example. It was a hot growth stock in 2020 when pandemic-related restrictions meant companies relied on digital document solutions to continue doing business.
The stock more than tripled from its pre-COVID levels by 2021, but the optimism didn't last. After peaking at just over $310 per share, DocuSign saw a steep, steady decline. In the past three years, the stock is down 73%, but in recent months, it has been picking up steam once again. Is there reason to believe the stock could turn things around this year?
NASDAQ: DOCU
Key Data Points
DocuSign's revenue growth has been falling sharply
A big problem for growth investors is that DocuSign simply isn't generating the same type of growth it did in the past. In its fiscal 2024 third quarter (ended Oct. 31), revenue of $700.4 million was up about 9% year over year, nowhere near its pandemic-era pace.
Data by YCharts.
For the final quarter of the current fiscal year, which ends Jan. 31, the company projects its revenue growth will decelerate further.
In November, DocuSign announced it was launching an integration with Meta Platforms' WhatsApp to fuel growth. DocuSign noted that "agreements delivered via WhatsApp are signed nearly 7x faster than those sent via email." And with WhatsApp growing in popularity among not just users but businesses, it could be an underrated growth catalyst for the company.
But based on the DocuSign's fundamentals and recent news, there's nothing there to suggest a 60% three-month rally for its shares is warranted.
Are investors simply betting on an acquisition?
There have been rumors that investment firm Bain Capital and private equity firm Hellman & Friedman are both trying to acquire DocuSign, and that speculation may be the primary catalyst behind the stock's recent gains.
There were also reports in December that DocuSign was looking at a potential sale, which is when its share price started to take off. The risk for investors is that no one knows what the purchase price will be, assuming a deal happens at all. Given the significant gains in the stock already, there may not be much upside left. And if an offer is too low and DocuSign walks away from the transaction, the stock could quickly give back its gains.
Is DocuSign a buy today?
With the stock trading at 21 times forward earnings estimates -- a premium to the broad market -- DocuSign's valuation is too high for a company showing no signs of reversing its weak growth trend.
Any comeback for the stock this year will likely remain tied to speculation around a sale of the company, and that isn't a compelling enough reason to invest in DocuSign today.
