Cash Machine Trading Cheap – Docusign Stock Set to Run?
We think Docusign (DOCU) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With DOCU
DOCU stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to increased competitive headwinds and a perceived moderation in revenue growth from prior rates. Additionally, conservative Q4 FY2026 guidance prompted a market re-evaluation.
The stock may not reflect it yet, but here is what’s going well for the company. The IAM platform, with over 25,000 customers, leverages AI for new contracts and international growth. Though 8% revenue growth trails past rates, IAM innovations aim for re-acceleration. Robust free cash flow ($262.9 million Q3) and a low 0.08 debt-to-equity ratio provide financial strength, further bolstered by share repurchases, creating a valuation floor.
DOCU Has Strong Fundamentals
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- Cash Yield: Docusign offers an impressive cash flow yield of 10.7%.
- Growing: Revenue growth of 8.4% over the last twelve months means that the cash pile is going to grow.
- Valuation Discount: DOCU stock is currently trading at 36% below its 3-month high, 51% below its 1-year high, and 57% below its 2-year high.
Below is a quick comparison of DOCU fundamentals with S&P medians.
| DOCU | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 10.7% | 4.1% |
| Revenue Growth LTM | 8.4% | 6.4% |
| Operating Margin LTM | 8.6% | 18.8% |
| PS Ratio | 2.9 | 3.3 |
| PE Ratio | 30.4 | 24.3 |
| Discount vs 3-Month High | -36.0% | -4.1% |
| Discount vs 1-Year High | -51.5% | -9.4% |
| Discount vs 2-Year High | -57.4% | -11.9% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While DOCU stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. DocuSign fell about 45% in the 2018 correction, slid 28% during the Covid crash, and tumbled nearly 88% in the inflation shock. Even with solid growth and a strong business model, the stock has shown it’s not immune to big market sell-offs. Downturns hit hard, reminding us that volatility is part of the game, no matter how promising the company looks. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read DOCU Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
If you want to see more details, read Buy or Sell DOCU Stock.
Other Stocks Like DOCU
Not ready to act on DOCU? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
Portfolios Beat Stock Picking
Individual stocks can soar or tank but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside and mitigate the downside associated with any individual stock.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.