How High Can DocuSign Stock Go?

Renowned e-signature company DocuSign, Inc. (NASDAQ:DOCU) has got firmly back on track after some turbulence in 2021 and 2022 when the company’s share price declined by more than 75%.

The recent stock performance has fared much better, begging the question where is the ceiling for this once hot stock?

DocuSign Is a Leader In Fast-Growing Market

First and foremost, the space in which DocuSign operates is growing at a rapid clip. DocuSign leads the digital signature market, with an estimated 67% to 75% market share and the market itself is growing by 30-40% annually.

DocuSign makes it secure for customers to sign electronic documents from virtually anywhere in the world. The company also offers contract lifecycle management software for the automation of pre- and post-signature workflows.

When lockdowns took effect a few years ago,  e-signatures were quickly adopted as workflows moved to the virtual world. Several governments around the world were also encouraging digital signatures to expedite workflows during this time.

Fortunately for shareholders, this has created a lasting impact on the market with global digital signature sector forecast to reach $118.88 billion by 2032, growing at a CAGR of 41% according to a report from Fortune Business Insights.

DocuSign has a large customer base and is primed to ride the coattails of market expansion. At the moment, it has more than 1.50 million paying customers and an even larger base of over a billion users. And judging from the steps that it has taken recently, there might be more to come.

DocuSign Got Lean and Profits Followed

Management began 2024 by putting a restructuring plan in place in February. As part of this initiative, DocuSign was set to shed approximately 6% of its workforce, with the majority of impacted positions in its Sales & Marketing organizations.

While some short-term non-recurring costs were estimated as a result of this restructuring, the plan was set to help the company become leaner and realize its long-term growth aims.

Management is also attempting to integrate AI to support leaner operations. To harness this effort, the company launched its generative AI-powered platform. The Intelligent Agreement Management (IAM) platform for SaaS categories.

DocuSign IAM connects different steps in the agreement management process, enabling capabilities like Customer Relationship Management, Human Capital Management, and Enterprise Resource Planning.

AI is used by the platform to speed up these steps. For example, DocuSign Navigator is powered by DocuSign AI to change unstructured agreements into structured data.

Navigator accelerates the process of finding agreements and accessing vital information. The company also acquired Lexion, an AI-powered agreement management firm, to harness the IAM platform and support more AI-assisted capabilities.

Overall, it is forecast that the IAM platform will help businesses regain $2 trillion in lost global economic value. Management believes this trend is expected to expand its addressable market and sees a $50 billion total addressable market with an even split between the sign segment and the e-sign addons and CLM segment.

How High Can DocuSign Stock Go?

DocuSign share price can rise to as high as $102.01 per share according to a 10-year discounted cash flow forecast analysis, suggesting 30.0% upside opportunity.

It should be noted though that analysts as a whole are much less optimistic and have a $64 consensus price target on the stock.

DocuSign’s fundamentals are looking good with total revenues for the most recent quarter coming in at $709.64 million, improving by 7% from the prior year’s quarter. But there has been a little bit of a slowdown in the year-over-year growth rates of the top line over the past five quarters.

The company earns a majority of its revenues from subscriptions and these have actually been stable. Subscription revenue accounted for 97% of the total revenue figure in the last reported quarter. This figure grew by 8% from the year-ago value to $691.48 million for the quarter.

For the past five quarters, international revenue growth rates have been higher than the overall revenue growth rates. Looking ahead, DocuSign expects total revenue to be in the range of $2.92 to $2.93 billion for the current fiscal year, indicating a growth of approximately 6% from the prior year at the midpoint.

Speaking on operational terms, customer numbers are growing in the double-digit percentages compared to their year-ago values, alongside healthy commercial customer growth. Plus, the company has a high dollar net retention rate. As of the last reported quarterly period, this value sits at a hefty 99%.

Software firms usually need to maintain a high free cash flow margin because they need to engage in investments to stay ahead of the curve. DocuSign has maintained this paradigm with free cash flow margin staying above the 30% mark in four out of the five trailing reported quarters.

Is DocuSign a Good Stock to Buy Now?

DocuSign has a whole lot going for it from being a leader in its industry to sitting in a market growing at north of 30% annually.

It’s also widening its presence abroad and continues to report solid financials, whether that’s impressive gross margins, forecasted net income growth or a long streak of year-over-year revenue growth increases.

When you put all that into the mix it’s no surprise that management has been buying back shares aggressively. And with a discounted cash flow forecast analysis suggesting much greater upside is on the horizon, even after the most recent run-up, bulls can take solace knowing there may be more fuel in the gas tank yet to fire this rocket ship higher.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.