Add Docusign (NASDAQ:DOCU) to the list of companies that reported incredible earnings but proceeded to completely tank after their most recent earnings call. For all intensive purposes Docusign crushed its earnings report in September and yet, since September 1st, is down nearly 30% to its current trading price of $194.86 per share. Nothing about the company has changed, in fact, you can argue that during the COVID-19 quarantine, Docusign has become as important as ever in our world.
Docusign is a SaaS company that provides digital signatures for businesses as the need for in person meetings and signatures has waned, especially in light of the current pandemic. With a year-over-year increase in billings of 61%, we can see just how in demand this technology truly is. It’s true that the stock price may have run up a bit with the great tech boom that took place over the past few months, and that even with the great earnings report, the stock was still trading at a valuation that was much too high. The stock has since corrected and just as commonly as shares move too far up, there is a tendency with momentum trading that a stock also moves too far down. I believe this to be the case with Docusign.
The TAM or total addressable market for Docusign is estimated at $25 billion, which is a figure purely for digital signatures. The true growth potential for Docusign is internationally, as current overseas revenues account for only 20% of the company’s bottom line and last I checked, the coronavirus lockdown was happening in nearly every country in the world. This should be the major growth factor moving forward, and along with being the number one name in the digital signature industry, Docusign should continue to expand its operations around the world. International revenue grew by 59% in Q2, which was actually a higher increase than domestic revenues which shows how fast the company is growing outside of the United States.
So should you buy Docusign? Yes! A 30% correction for a stock after smashing earnings expectations is unusual, although a little less so in these uncertain times. Other tech companies that have plummeted since having solid earnings calls are Fastly (NYSE:FSLY), CrowdStrike (NASDAQ:CRWD), and BigCommerce (NASDAQ:BIGC). This is not a true valuation of the company and its future potential but more of the market admitting that these tech stocks had risen too far and too fast. Just as some investors love to take profits when a stock rises quickly, long-term investors should be looking at this as an opportunity to buy Docusign when it is this low. The next few quarters should show how valuable a company Docusign is in our current climate and we should start to see the benefits of some recent acquisitions like LiveOak to start its Docusign Notary program. Long-term potential is the key here and investing in an industry leader when the stock has dipped is always a profitable endeavour in the long run. So buy the dip with Docusign and hold it for a long-term horizon as this technology is here to stay and will only continue to grow in its usage, now and after the COVID-19 pandemic is over.
Disclaimer: I am long on DOCU. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.