Docusign (DOCU -2.64%) stock soared to a peak of $310 in 2021 on the back of an incredible spike in demand for the company's suite of digital document tools, which helped businesses keep their operations running smoothly in the face of the pandemic's lockdowns and social distancing restrictions.
Since that pandemic tailwind subsided, the stock has slumped by 75% from that peak, but the business itself is still generating steady revenue growth, and its profits are currently soaring. Plus, Docusign is experiencing strong demand for its new Intelligent Agreement Management (IAM) platform, which is powered by artificial intelligence (AI).
On June 6, Docusign reported results for its fiscal 2026 first quarter (which ended April 30), and management increased its full-year revenue guidance, which signals clear momentum across the business. Here's why investors might want to buy the stock now.
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IAM could transform contract management
Docusign transformed its product portfolio over the past year. It still helps businesses create, negotiate, and close contracts, but AI is now at the center of that mission. The IAM platform is designed to solve the "agreement trap" more effectively. According to a study by Deloitte, the inefficiencies caused by poor contract management processes result in $2 trillion in lost economic value every year. That represents a massive opportunity for Docusign.
IAM features a growing list of revolutionary products. Navigator, for example, is a digital repository where businesses can store their agreements. It uses AI to extract critical details from each document so they are discoverable via its search function, which saves employees from spending valuable time digging through contracts manually.
Then there is AI-Assisted Review, which can help employees rapidly identify problematic clauses or even opportunities within each agreement. Businesses can also set pre-approved standards so the tool knows exactly what to look for, which reduces the time it takes to reach a final deal.
Maestro ties the IAM platform together with a series of no-code tools that allow businesses to automate agreement workflows. They can drag-and-drop features like webforms, ID verification, and eSignature into each contract, which saves significant amounts of time and money compared to manual processes, especially when creating agreements at scale.
At the end of its first quarter of fiscal 2026, Docusign had 1.7 million paying enterprise customers and more than 1 billion individual users. The company launched the IAM platform in April 2024, and it already has 10,000 paying enterprise customers who have used it to process tens of millions of agreements so far. During the quarter, IAM sales in international markets soared by 50% compared to fiscal 2025 Q4, which highlights the platform's serious momentum.
Steady revenue growth, and soaring profits
Docusign generated $763.7 million in total revenue during fiscal Q1. That was an 8% increase from the year-ago period, and comfortably above the $749 million that had been the high end of management's guidance range.
In fact, the strong result prompted the company to revise its revenue forecast for fiscal 2026 upward by $22 million to $3.163 billion at the high end of the range.
In my opinion, Docusign could be growing its revenue more quickly, but it's carefully managing its costs to improve its bottom line rather than investing more heavily in customer acquisition. The company's total operating expenses only increased by 1.6% year over year during the first quarter, which was a much slower rate than its revenue increased. As a result, its net income surged by 113.5% to $72.1 million on a GAAP (generally accepted accounting principles) basis.
Docusign also achieved a solid result in the bottom line on a non-GAAP basis, which excludes one-off and non-cash expenses like stock-based compensation. Non-GAAP net income came in at $190.8 million, which was an increase of 10% from the year-ago period.
Non-GAAP results can be particularly useful for investors to consider when a company incurs a large one-off benefit or expense. For example, during Docusign's fiscal 2025 second quarter, it reported a large one-off tax benefit worth $816 million which massively skewed its net income, so its GAAP earnings weren't a true reflection of the performance of its actual business.
Docusign stock is trading at an attractive valuation
When Docusign stock peaked in 2021, its price-to-sales (P/S) ratio soared to an unsustainable level of around 40. The 75% decline in its stock since then, combined with the company's steady revenue growth, has pushed its P/S ratio down to a more reasonable 5.4.
In fact, that's a 56% discount to its average P/S ratio of 12.5 since the stock went public in 2018.
DOCU PS Ratio data by YCharts.
Docusign also trades at a price-to-earnings (P/E) ratio of just 14.6, which makes it far cheaper than the S&P 500 index, which is trading at a P/E ratio of 23.3. However, that is based on Docusign's trailing 12-month GAAP earnings per share (EPS) which, as I mentioned earlier, was skewed by a one-off tax benefit from the second quarter of fiscal 2025.
Therefore, the P/S ratio might be a better way to value the stock right now, but no matter which way you slice it, Docusign's valuation appears attractive. The picture looks even better when you factor in the company's addressable market, which could be worth $50 billion according to an estimate issued by management last year. Based on its current revenue, it has barely scratched the surface of that opportunity.
In summary, Docusign stock can offer investors unique exposure to the AI revolution, and its combination of steady revenue growth and soaring profits could make it a great addition to any diversified portfolio at the current price.
