Undervalued Stocks with High Growth Potential: Twilio, DocuSign, & Fiverr

The secret to a winning portfolio may be as simple as to buy undervalued stocks with significant growth potential but that’s easier said than done.

Falling share prices usually means something has gone awry within a company, whether it’s financial or operational. Worse still, when prices stay low, it often means that the company is facing significant challenges and a turnaround is not expected anytime soon. 

It is rare to find hidden gems at bargain prices that have gone unnoticed by the market, but it’s not impossible. These three stocks have all the signs of being overlooked and with the potential to deliver strong returns. 

DocuSign Solves a $2 Trillion Problem

DocuSign, Inc. (NASDAQ:DOCU) has solved one of the biggest obstacles in doing business efficiently, signing paperwork. The platform is a complete electronic signature solution that serves over 1.5 million paying customers in 180 countries. 

Among other services, DocuSign offers e-signature, Contract Lifecycle Management (CLM), and Document Generation, both of which are critical for business momentum because they make it easier and faster to manage agreements across a wide variety of digital devices.

Where DocuSign shines brightest is enabling organizations go gain clear visibility into contracts. A recent report by Deloitte says that poor management of agreements and systems leads to the loss of almost $2 trillion in global economic value each year. That’s an enormous problem that DocuSign solves and highlights why it’s so valuable, now worth $12.1 billion.

It’s been reported that procurement teams miss out on saving more than $1 million on average because they don’t use contractual incentives properly. The DocuSign Connector for SAP Ariba is one answer to this challenge, and an effective one at that too.

It’s clear that DocuSign has already identified numerous pain points for businesses and grown a massive business but what will spark future growth?

Is DocuSign an AI Business?

In May, DocuSign acquired Lexion, a leading AI-powered agreement management company. For DocuSign this is likely to be a win because it should permit clients to gain deeper analysis and insights, as well as faster contract reviews, and even simpler information searches.

By bringing Lexion in under its umbrella, DocuSign should strengthen its offerings in the Intelligent Agreement Management arena and improve the AI-supported features of its IAM platform.

If analysts are right that should spur already solid financial results. For example, in Q2 FY2025, total revenues rose by 7.3% compared to the same period last year to a total of $709.64 million. Non-GAAP gross profit increased by 6.5% compared to last year’s value, reaching $582.17 million.

Non-GAAP net income grew by 15.1% compared to last year’s same period and totaled $172.84 million. Free cash flows rose by 8.2% year-over-year to $232.07 million.

For the fiscal year ending January 2025, management is forecasting a revenue increase of 6% to $2.93 billion while EPS is expected to rise by 9% and hit $3.25 per share.

It is worth noting that the company has performed better than expected over the last four quarters in both revenue and EPS.

Looking ahead to the fiscal year ending January 2026, revenue is expected to grow by 6.2% year-over-year while earnings per share is set to climb by 7.7% compared to the current year and hit $3.11 billion and $3.50, respectively.

When it comes to valuation, analysts forecast that DocuSign will rise to $64.35 per share, the consensus estimate among 17 analysts.

One strong tailwind in favor of new shareholders is that management appears to support the view that the share price is not reflecting fair value and have an additional $1 billion buyback authorized.

Twilio Allows Business Scale SMS Messaging

If you were in the business of communicating with customers via SMS, Twilio (NYSE:TWLO), is most likely where you would begin your journey. It does much more than SMS, and includes voice and video communications as well as email but SMS communications is a flagship product.

The company has been so effective in building a way for businesses to scale these messages that millions of developers and businesses in over 180 countries use Twilio’s services to attract and retain clients.

Twilio has all the bells and whistles most businesses need whether that’s tracking the customer journey from sales to support or software that provides end-to-end security to mitigate cybercrime risks.

With all its successes already, Twilio has by no means rested on its laurels and recently announced new product features that enable Twilio tools to integrate more effectively with data platforms and warehouses.

The big idea is to improve clients’ ability to handle customer data more efficiently by giving them a real-time, complete view of their customers. As a result of these insights, businesses can be more proactive in improving customer experiences and limit the times when minor issues mushroom to become major ones. 

So, how is Twilio faring when it comes to the financials?

Twilio Earnings Per Share Set To Soar 25%

Twilio reported pretty good financial results in Q1 2024 with advances in profitability and free cash flows. Management reported a revenue increase of 4% from the previous year, for a total of $1.05 billion.

Non-GAAP gross profit increased 7.6% from the previous year to $565.96 million while income from operations increased by 53.8% from the year-ago value to $159.61 million. Non-GAAP net income grew massively by 65.8% to $146.34 million.

Both revenues and EPS are forecast to climb in the coming years. By the end of this year, Twilio’s revenue is projected to rise by 4.7% to $4.35 billion while EPS is set to climb by 25.1% and reach $3.06.

And when it comes to analysts forecasts, management has done a stellar job eclipsing forecasts on the bottom and top line over recent quarters. For next fiscal year, revenues are expected to grow by 8.5% while EPS is set to go up by 16.4% year-over-year, reaching $4.72 billion and $3.57 per share respectively.

Sentiment seems to be swinging in favor of Twilio with 24 of 27 analysts revising their estimates higher for the coming quarter. And similar to DocuSign, Twilio management appears optimistic about the share price’s prospects by signing off on a share repurchase scheme too.

Among the 27 analysts covering Twilio, the consensus fair value estimate is $68.42 per share, suggesting 12.5% upside opportunity, though it should be noted that a discounted cash flow forecast analysis is more optimistic and pegs fair value at $86 per share.

Fiverr Marketplace Quality Going Up?

If you’re on the hunt for freelance work, Fiverr (NYSE:FVRR) is the place to to find online talent. Last year alone, 4 million clients found workers there who are skilled at everything from programming and 3D design to digital marketing.

At the start of the year, Fiverr announced a big update to one of its most popular services, the Consulting Category that connects Fiverr clients with top industry experts. This alongside a new ratings system to review freelancers have been crucial to solving a perceived problem with talent quality. 

Much like a feedback loop on Uber where drivers can be rated, Fiverr’s approach is aimed at supporting workers to upskill and improve the overall quality of the marketplace.

Another big initiative has been bringing in vetted freelance tax experts to help businesses manage the complexities associated with tax season. These professionals are licensed CPAs, enrolled agents, financial consultants, and tax lawyers who are reported to have experience dealing with federal, state, and international taxes.

So, are all the efforts translating to impressive financials?

Financials Start The Year Strong

From a financial perspective, Fiverr had a strong start to the year with Q1 FY 2024 coming in better than expected.

For the period that ended March 31, 2024, Fiverr’s revenue increased by 6.3% year-over-year to a total of $93.52 million while non-GAAP gross profit grew 7.5% from the year-ago value to a total of $79.37 million.

The company’s adjusted EBITDA went up 41.8% from the prior year period to $16.02 million and non-GAAP net income increased by 48.4% to reach $21.73 million.

As far as analysts are concerned, Fiverr has material upside now to $31.50 per share but that’s not all there is to like. Fiverr remarkably earns a perfect Piotroski Score of 9 for having stellar fundamentals. 

That’s no surprise given the high gross margins and expectations for net income to climb at a rapid rate of 83% annually over the coming 5 years. If that’s realized the price-to-earnings ratio of 72.3x now which seems lofty will in fact appear cheap in hindsight.

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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.