It has been a tough ride in 2021 for many growth companies that saw their stock prices rise during the pandemic. An example: e-signature company DocuSign (NASDAQ :). The stock has been range trading since reaching an all-time high in September.
The San Francisco-based application software company experienced explosive growth for its digital services as the shift to remote working and social distance prompted companies to seek digital signatures and manage their contracts electronically.
These trends helped make DocuSign one of Wall Street's biggest success stories in 2020, behind Zoom Video (NASDAQ :), Tesla (NASDAQ 🙂 and Moderna (NASDAQ :). Even with a decline of more than 20% from a record high of nearly $ 269 a share in early September, DocuSign stock is still 192% higher over the past year. Shares closed at $ 213.34 on Wednesday, about 1% more than that day.
DocuSign Weekly Chart.
A dilemma for investors interested in these new technology stocks is whether they will be able to maintain their growth momentum once the pandemic is under control and companies start operating normally. The nature of DocuSign products suggests that there is a lot of post-pandemic growth ahead.
The success of DocuSign during the pandemic proves strongly that its products are firmly established in an economy that is rapidly transitioning to the digital world. The company offers individual e-signature plans from $ 10 per month to enterprise-level packages for large businesses.
$ 50 Billion Market
DocuSign tools enable businesses to digitally manage the end-to-end agreement process, from initial drafts to contract execution and post management signature. The Agreement Cloud suite also allows customers to use its artificial intelligence capabilities to research contracts to identify issues, assess risks, and build smart, purpose-built contracts from scratch.
According to the company's CEO, Dan Springer, DocuSign is still in the early stages of growth in what he predicts is a $ 50 billion addressable market.
In a statement last week, he said:
“Fiscal 2021 was a milestone year for DocuSign. We became a pillar of the & # 39; everywhere economy & # 39; enabling people to do more and more everything in life and work, anywhere. Throughout this process, we've grown our business by nearly 50%, reaching nearly $ 1.5 billion in revenues, and achieving a record net retention rate of 123%. We believe this achievement is an acceleration of the ongoing trend towards the digital transformation of agreements. "
DocuSign exceeded revenue and profit expectations for it, while delivering a better-than-expected view of those metrics. The company reported fourth quarter adjusted earnings of $ 0.37 a share on March 11, up from $ 0.12 cents a share a year earlier. Sales for the quarter increased from $ 258 million to $ 410 million.
The company strives for growth, especially abroad, where it currently generates only 21% of its sales. International customer revenue grew an impressive 83% year-over-year to $ 89 million in the fourth quarter.
Bottom Line
While it is not difficult to see DocuSign continue to grow after the pandemic, the stock is unlikely to replicate the past year's performance. A major challenge for high-momentum stocks such as DocuSign is that investors avoid companies that demand a significant valuation premium when interest rates are slowly rising.
Perhaps that's why analysts don't see much upside in DocuSign stock this year, with a consensus price target of close to $ 280 per share. That said, DocuSign is a good stock to buy and hold in your fast-growing portfolio.
