The COVID-19 pandemic created a series of tailwinds for document technology company Docusign (DOCU +1.00%), because its software allows businesses to draft, negotiate, and close deals in the cloud. Demand soared when lockdowns and social restrictions took effect, which propelled Docusign stock to an all-time high of $310 in mid-2021.
But as social restrictions fell away, Docusign experienced a slowdown in its revenue growth, forcing the company to halt its aggressive spending and dramatically cut costs or face blowout losses. The pivot is bearing fruit, because Docusign is now consistently profitable, setting it up for a more sustainable long-term future.
Docusign shares still trade about 83% below their all-time high, but they now look cheap based on several traditional valuation metrics. Here's why investors might want to buy the stock now.
NASDAQ: DOCU
Key Data Points
Docusign just launched a whole new platform powered by AI
Docusign was originally the world's largest e-signature company. Then it built the Agreement Cloud, a collection of dozens of digital applications designed to manage the entire contract life cycle, from drafting to negotiating to closing. It helped the company scale to more than 1 billion users worldwide, with over 1.5 million paying customers.
In April, Docusign launched an entirely new platform called Intelligent Agreement Management (IAM), to solve what it calls the "agreement trap" by using artificial intelligence (AI). In short, most enterprises have mountains of valuable data trapped inside contracts that can now be autonomously extracted, analyzed, and used to make critical decisions thanks to AI.
An estimate by Deloitte suggests this could unlock a whopping $2 trillion in global economic value and save workers billions of hours in lost time, so IAM could be Docusign's biggest opportunity to date.
Critically, IAM represents a change in strategy for Docusign. It takes a true single-platform approach that consolidates all of the company's software tools, unlike the previous Agreement Cloud, which was a collection of separate applications. IAM should streamline the sales process because customers know they get the entire Docusign portfolio with clear and transparent pricing.
Plus, IAM introduces new features like Docusign Maestro, an automated agreement workflow tool that allows businesses to draw up contracts using drag-and-drop tools, complete with identity verification and e-signature capabilities -- no programming or code required.
Image source: Getty Images.
Docusign is profitable, but it's coming at a cost
Like many technology companies, Docusign spent years burning through cash to fuel its incredible growth. The idea was to rapidly develop new products and acquire as many customers as possible, and once scale was achieved, cut back on those growth-oriented costs to turn profitable.
That's where Docusign stands now. During fiscal 2024 (ended Jan. 31), the company generated net income of $73.9 million, marking the first profitable year (on a GAAP basis) in its history. It had to rein in its spending to get there; for example, despite its overall operating costs growing by 4.3% year over year, it slashed its largest cost -- sales and marketing -- by 6%.
Profitability seemed to improve even further in the fiscal 2025 first quarter (ended April 30), because the company generated $33.7 million in net income. If that momentum continues for the rest of 2025, it could be on track to nearly double its GAAP profit this year.
But here's the downside: Docusign's total revenue came in at $2.8 billion in fiscal 2024, rising by just 9.8% year over year. That's a long way from the 49% growth it delivered at the height of the pandemic in fiscal 2021.
Docusign's revenue growth slowed even further in the fiscal 2025 first quarter, coming in at just 7% compared to the year-ago period. The company's guidance suggests its full-year revenue will come in at $2.9 billion, which would equal an increase of just 4.5% from fiscal 2024.
Simply put, pulling back on growth-oriented costs like sales and marketing helps the bottom line, but it puts the brakes on Docusign's ability to expand its business at the same pace as before.
Why Docusign stock is a buy now
Based on Docusign's $2.8 billion in trailing-12-month revenue and its current market capitalization of $10.4 billion, its stock trades at a price-to-sales (P/S) ratio of 3.7. That's near the cheapest level since the company came public in 2018:
DOCU PS Ratio data by YCharts
Of course, Docusign's slowing revenue growth is a key reason investors aren't willing to pay a higher valuation for the stock. However, the company has barely scratched the surface of its $50 billion addressable market, and the launch of IAM could potentially expand that figure further over the long term. Therefore, Docusign's revenue has plenty of room for growth, but the company might have to tweak its expenses and allocate more money to sales and marketing to unlock it.
Docusign stock also looks cheap based on its profitability. On a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation, the company has generated $3.09 in earnings per share over the last four quarters. Based on its current stock price of $50.99, it's trading at a price-to-earnings (P/E) ratio of just 16.5.
That's a 46% discount to the 30.9 P/E ratio of the Nasdaq-100 technology index, and it's also 29% cheaper than the 23.4 P/E ratio of the benchmark S&P 500 index. In other words, Docusign stock is substantially less expensive than the broader market right now.
To cap off the bullish case, Docusign is sitting on $1.1 billion in cash, equivalents, and short-term investments, with no debt. Since the company is consistently profitable, it's returning some of that money to shareholders through a stock repurchase program. It spent $145.5 million on buybacks in fiscal 2024, followed by an additional $149 million in the first quarter of fiscal 2025. Furthermore, management just added $1 billion more to the program that will be deployed as it sees fit.
In short, Docusign is highly profitable, it's returning cash to shareholders, it has an enormous addressable market, and its stock is extremely cheap. That combination could lead to nice returns for investors over the long term.
