Docusign (DOCU -18.98%) stock plunged 19.3% through 11:11 a.m. ET this morning despite "beating earnings" on both top and bottom lines last night.
Heading into the company's fiscal Q1 2026, analysts forecast the e-signatures company would earn $0.81 per share on just under $750 million in sales. In fact, Docusign earned $0.90 per share, "adjusted," on sales of nearly $764 million.
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Docusign's Q1 earnings
Sales grew 8% year over year, but billings were up only 4% -- which may foreshadow a slowdown in growth ahead.
Gross profit margins, on the other hand, improved 50 basis points to 79.4%. And diluted earnings as calculated according to generally accepted accounting principles (GAAP) more than doubled to $0.34 per share. Not quite as good as "$0.90," but still a big improvement.
All this being said, Docusign's free cash flow belied the growth in both sales and earnings. FCF for the quarter was only $227.8 million in Q1, versus $232.1 million a year ago. It didn't double. It didn't grow even 8%. It... went down.
Is Docusign stock still a buy?
Should this worry investors? Perhaps.
Docusign's Q2 guidance sees sales growth slowing to 6%, $779 million in revenue or thereabouts. Growth for the full year is likewise forecast at about 6%, $3.15 billion or $3.16 billion in annual sales. That's not a lot of growth for a supposed growth stock, and reinforces the impression we get from slow billings growth.
That said, Docusign stock sells for an unchallenging valuation of only 16.6 times trailing FCF -- cheaper than that when you factor in net cash on the balance sheet. If Docusign can just find a way to goose its growth rate again, this stock could still be a buy.
