Should Investor Buy DocuSign (DOCU) Before Earnings?

: DOCU | DocuSign Inc. News, Ratings, and Charts

DOCU – DocuSign (DOCU) posted solid first-quarter results, and the company’s growth prospects look promising, driven by robust demand for its flagship product, eSignature, diversification in its product portfolio, and strategic partnerships. So, let’s find out if this stock is a buy before the second-quarter earnings release. Read on to know more….

DocuSign, Inc. (DOCU), a global electronic signature solution provider, beat analyst estimates for revenue and earnings in the first quarter of fiscal 2024. The company reported first-quarter revenue of $661.39 million, above the consensus estimate of $641 million. It posted an adjusted EPS of $0.72, compared to the $0.56 expected by analysts.

“DocuSign’s first quarter results, coupled with traction on our strategic objectives reflect a solid start to the year,” said Allan Thygesen, DOCU’s CEO. “While we have work ahead of us, I am encouraged by our progress to enable smarter, easier, trusted agreements. As we continue to execute on our strategy and leverage our competitive advantages, notably in AI, DocuSign is well positioned for the future.”

On July 25, DOCU launched its enhanced identity verification offering, Liveness Detection for ID Verification. Part of the company’s Identify portfolio, this new feature employs AI-enabled biometric checks to confirm signers’ identity, physical presence during signing, and the validity of their IDs.

Developed in partnership with Onfido, a global leader in automated identity verification, this feature is tightly integrated with DocuSign’s eSignature workflow, eliminating the need for users to use multiple platforms to complete secure agreements. DOCU intends to infuse its entire product suite with AI to offer customers frictionless experiences that are smarter and more trusted.

DOCU, which is set to release its second quarter fiscal 2024 results on Thursday, September 7, 2023, after the market’s closing, expects total revenue to be between $675 to $679 million for the quarter that ended July 31, 2023. Also, the company’s non-GAAP gross margin and non-GAAP operating margin are expected to be 81-82% and 24-25%, respectively.

For the fiscal year ending January 31, 2024, DOCU currently expects total revenue to arrive between $2.71 to $2.73 billion, while it projects its non-GAAP gross margin and non-GAAP operating margin to be between 81% to 82% and 22% to 24%, respectively.

Shares of DOCU have gained 2% over the past month and 23.2% over the past nine months to close its last trading session at $52.27.

Let’s look at factors that could influence DOCU’s performance in the upcoming months.

Robust Financials

For the first quarter that ended April 30, 2023, DOCU’s total revenues increased 12.3% year-over-year to $661.39 million, and its Subscription revenue came in at $639.31 million, up 12.3% year-over-year. Its gross profit rose 15% from the year-ago value to $524.90 million. Its non-GAAP income from operations grew 72% year-over-year to $175.77 million.

Additionally, the company’s non-GAAP net income increased 94% from the prior-year quarter to $150.21 million, while its non-GAAP EPS came in at $0.72, an increase of 89.5% year-over-year. Also, as of April 30, 2023, DOCU’s cash and cash equivalents stood at $940.49 million, compared to $721.90 million as of January 31, 2023.

Solid Historical Growth

DOCU’s revenue grew at a CAGR of 34.8% over the past three years. Its total assets increased at a CAGR of 17.7% over the same period. In addition, the company’s levered free cash flow grew at a CAGR of 51.3% over the same time frame.

Favorable Analyst Estimates

Analysts expect DOCU’s revenue for the second quarter (ended July 2023) to come in at $677.42 million, indicating an increase of 8.9% year-over-year. The consensus EPS estimate of $0.66 for the to-be-reported quarter reflects a 49.2% year-over-year improvement. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

In addition, analysts expect DOCU’s revenue and EPS for the current fiscal year (ending January 2024) to increase 8.2% and 26% from the previous year to $2.72 billion and $2.56, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 7% and 4.9% year-over-year to $2.91 billion and $2.68, respectively.

High Profitability

DOCU’s trailing-12-month gross profit margin of 79.27% is 65.5% higher than the 47.89% industry average. Its trailing-12-month levered FCF margin of 30.55% is 332.8% higher than the 7.06% industry average. Likewise, the stock’s trailing-12-month CAPEX/Sales of 2.90% is 19.59% higher than the industry average of 2.42%.

Furthermore, the stock’s trailing-12-month asset turnover of 0.91x is 47.2% higher than the industry average of 0.62x.

POWR Ratings Reflect Promise

DOCU’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DOCU has an A grade for Growth, in sync with its solid financial performance and optimistic analyst estimates. The stock also has a B grade for Quality, consistent with its higher-than-industry profitability.

DOCU is ranked #4 in the 24-stock Software – SAAS industry.

Beyond what I have stated above, we have also given DOCU grades for Sentiment, Value, Momentum, and Stability. Get access to all the DOCU ratings here.

Bottom Line

DOCU surpassed consensus revenue and earnings estimates for the last reported quarter. Further, analysts are bullish about the company’s growth prospects. DocuSign is well-placed to benefit from continued demand for its main product, eSignature.

The company has been formulating several growth strategies for acquiring customers, increasing eSignature use cases to existing customers, improving its offerings by infusing AI and other technologies, and expanding internationally. Also, DOCU’s strategic partnerships with Inc. (CRM) and Microsoft Corp. (MSFT) are significant tailwinds for the company.

Given DOCU’s strong financials, robust profitability, and promising growth outlook, this stock could be an ideal buy before its upcoming earnings release.

How Does DocuSign, Inc. (DOCU) Stack Up Against Its Peers?

While DOCU has an overall POWR Rating of B, investors could also check out these other stocks within the Software – SAAS industry with A (Strong Buy) or B (Buy) ratings: Vimeo Inc. (VMEO), MiX Telematics Ltd. (MIXT), and Informatica Inc. (INFA). For exploring more A and B-rated software stocks, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

DOCU shares rose $0.07 (+0.13%) in premarket trading Wednesday. Year-to-date, DOCU has declined -5.68%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
DOCUGet RatingGet RatingGet Rating
INFAGet RatingGet RatingGet Rating
VMEOGet RatingGet RatingGet Rating
MIXTGet RatingGet RatingGet Rating
MSFTGet RatingGet RatingGet Rating
CRMGet RatingGet RatingGet Rating

Most Popular Stories on

2024 Stock Market Outlook

The time to think about the 2024 stock market is now. Will it be a bull or bear? Where does the S&P 500 (SPY) end the year? And what are the top picks to outperform? Investment veteran Steve Reitmeister does his level best to answer all these questions. Just read on below...

3 Stocks Bringing AI to the Masses

Like it or not, large companies with a combination of cash and massive databases do have an advantage in the new AI world. These three companies are wielding that advantage to get a leg up in the rapidly changing AI landscape. Keep a close eye on how these companies, Meta (META), Alphabet (GOOGL) and Yelp (YELP) continue to take advantage of their respective incumbencies to shape the consumer’s interaction with AI.

With Oil Soaring, My Under $10 Stock of the Week

The number of oil rigs in the U.S. and Canada has decreased by 170 over the past year. International oil suppliers are cutting output. This opens the door to small oil and gas exploration and development companies like Baytex Energy (BTE).

Income Stock of the Week: Manhattan Bridge Capital (LOAN)

In the current high mortgage rate environment, and with financial instability growing in the commercial real estate market, you want to be extra diligent when investing in mortgage lenders. This lender has a sterling track record of providing short term loans to those needing some quick extra cash. And Manhattan Bridge Capital (LOAN) is rewarding investors with a hefty dividend.

Stock Market vs. Bond Rate Relationship Revealed

The stock market is affected by many things like the Fed and the economy. However, there is not enough talk about how the movement of bond rates makes stocks more or less attractive. Like how the S&P 500 (SPY) is having a terrible September as bond rates explode higher. Learn more about this dynamic relationship and what it means for stock prices in the days ahead.

Read More Stories

More DocuSign Inc. (DOCU) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All DOCU News