Low Earnings Bar for DocuSign, a One-Time Pandemic Star

DocuSign (DOCU), a company that provides electronic-signature services used in real estate and other businesses, has plunged -64% this year, the second-worst performer in the Nasdaq 100 Stock Index ($IUXX) (QQQ).  As with other companies that surged during the pandemic, including Netflix (NFLX), Peloton Interactive (PTON), and Zoom Video Communications (ZM), analysts have cut their growth estimates for these stocks as the economy reopened. 

Q2 earnings results from DocuSign are due after the close of trading today, and market expectations are for Q2 adjusted EPS of 42 cents.  The last two earnings reports from DocuSign showed the stock fall between -20% and -42% in the subsequent session.  Options traders expect another post-earnings swing after today’s earnings report, with an implied one-day move of 21.5%.

ClearBridge Investments said, “investor sentiment for DocuSign is among the most negative we have seen, and that means a low bar for earnings.  It’s hard to call the near-term fundamental outlook positive, but we’re optimistic about the long-term story, and the valuation is compelling on that basis.”  DocuSign trades at about 32.5 times forward earnings, above the 21 multiple of the Nasdaq 100 Index but near the all-time low for the stock.

After DocuSign tripled in price in 2020, the stock fell -31% last year, and the selloff continued this year, with DocuSign falling to a 3-year low on Tuesday.  Also, analysts forecast sales growth of +17% this year, down sharply from +40% to +50% over the past three fiscal years.  In addition, the company’s recent struggles prompted CEO Dan Springer to step down in June.

Analysts continue to pare their earnings estimates for DocuSign.  The average prediction for full-year adjusted earnings per share is down by 20% from six months ago, while the view for revenue has fallen 7.4% over the same period.  However, even after the estimate cuts, analysts see double-digit revenue growth for the company over the next few years.  

The big cloud hanging over DocuSign, and all growth stocks, is the macroeconomic environment.  Truist Advisory Services said, “the valuation for DocuSign isn’t ridiculous anymore, but I wouldn’t say it’s cheap, especially since it doesn’t have as much cash flow as we’d like, and we don’t know what demand looks like going forward.  Given the uncertain growth outlook, it is difficult to step into a name like this.”

• Stocks Higher as Inflation Expectations Fall
• Stocks See Downward Pressure after Sharp ECB Rate Hike
• 2 Option Trade Ideas For TSLA This Week
• Mullen Automotive (MULN) Becomes the Target of Unusual Options Activity