Sellers couldn’t unload DocuSign (NASDAQ: DOCU) fast enough on Friday. When the carnage was over, the once pandemic superstar saw nearly $100 cut from its share price and approximately $20 billion from its market value.
The sharp selloff in 22x the average daily trading volume felt like DocuSign was in the throes of a massive accounting scandal. Instead, the electronic document solutions provider’s fourth-quarter guidance and comments signaled slowing growth ahead. A better than expected third-quarter performance was brushed aside in route to a 42% single-day plunge.
As the dust begins to settle, the question now is: Is DocuSign dead money or a major buy opportunity? While selling pressure may persist as growth investors rotate to faster growing stocks, bargain hunters now have a chance to invest in a dominant SaaS powerhouse whose run is far from over. Here’s three reasons why:
#1 DocuSign is Technically Oversold
Although a selloff was warranted here, the magnitude of the drop was not. As the institutional money rushed to exit DocuSign, retail investors followed in a sell version of FOMO. In the end, the stock’s relative strength indicator (RSI) reading dipped below 10 for the first time ever.
That isn’t to say it will bounce back sharply, but firmly entrenched in oversold territory, there is very limited downside and significant upside at this stage. DocuSign currently has the fourth-lowest RSI among Nasdaq's 100 peers. Only MercadoLibre, Biogen, and Activision Blizzard are more oversold.
The long-term support level is around $86. A second shoe would likely have to drop for another $50 to come off the price. If this worst-case scenario happens, however, and the stock finds long-lost support there, it could be a major bottom-feeding opportunity.
#2 The Long-Term Growth Opportunity Remains
Speaking of opportunity, despite the prospects for slowing growth, DocuSign still has a long road ahead when it comes to acquiring new customers and entering new markets. Some analysts are already writing off the e-signature leader as a one-hit pandemic wonder, but this appears near-sighted.
A major growth opportunity still resides overseas where DocuSign generates less than one-fourth of its revenue. While North America, Brazil, Australia, and parts of Europe are far along the digital transformation curve, many countries have only just begun. This leaves well over 100 markets that are ripe for DocuSign’s disruptive software and services as businesses shift from paper to paperless. Lost in the third quarter report was a 68% international revenue growth figure, the likes of which has the potential to drive significant earnings beats going forward as DocuSign spreads into new territories.
As DocuSign continues to grow in the estimated $50 billion global agreement cloud space, product innovations will afford the company plenty of room to expand. As the world’s leading e-signature business, it still has many untapped industries to which to introduce cost effective document preparation, signing, and management solutions. The development of software tailored to underserved end markets in the tech, financial, and industrial sectors is an underappreciated growth catalyst for DocuSign.
Granted, DocuSign’s best growth days may be behind it, but it is still capable of producing double digit growth over the next few years. At some point, every high-flying tech company nears a point of maturation. This forces it to find new growth drivers in the form of new products or verticals (a la Apple, Microsoft, etc.) to keep investors interested. Based on the size of DocuSign’s ecosystem and the value of partnerships with industry pioneers like Salesforce, expect the unexpected when it comes to new growth catalyst’s in a digital-first global economy.
#3 DocuSign’s Biggest Insider is Buying
DocuSign CEO Dan Springer appeared taken aback by the market’s response to what would probably amount to less of a punishment for a non-pandemic mega winner. Late last week in a Yahoo Finance Live interview, the executive expressed surprise about the selloff given DocuSign’s leading position in the electronic signature space and growth prospects.
Because of the perceived disconnect, Mr. Springer said he plans to buy $5 million of DocuSign stock on December 7th when the post-earnings insider window opens. And should the stock not get a big dead cat bounce as some expect, he noted “I’ll be continuing to buy shares”.
This is a strong vote a confidence from a CEO whose back is suddenly against the wall, a position few could have imaged given the wild success of DocuSign’s platform. He has seen his DocuSign stake trimmed to $215 million but hasn’t been shy about plans to acquire lower cost shares. No one knows the ins and outs of the business more than Mr. Springer, so his backing here should provide downside protection as DocuSign enters unchartered waters in 2022.
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