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DocuSign: Demand For Digital Agreement Processes Won't Fizzle Out Post-COVID

Mar. 09, 2021 5:30 PM ETDocuSign, Inc. (DOCU) Stock17 Comments


  • DocuSign is much more than just an eSignature product. It's a rapidly growing and diversifying agreement process platform.
  • Investors erroneously believe that in the post-COVID world, the demand for its products will tail-off.
  • Why the stock is now very much cheaply valued, as it trades for 20x forward sales, despite generating free cash flow margins of 10%.
  • Looking for more investing ideas like this one? Get them exclusively at Deep Value Returns. Learn More »

Investment Thesis

DocuSign (NASDAQ:DOCU) continues to perform in top shape. Meanwhile, investors' sentiment has become fully detached from underlying fundamentals. DocuSign is a rapidly growing business, and the post-COVID world won't change that.

Over time, DocuSign will go from a nice-to-have platform to a can't-live-without eSignature product -- the only question is how long it will take.

Also, as you'll see here, DocuSign is much more than just a lockdown winner: it's a strong company that's likely to grow its revenues at somewhere around 30% to 35% in 2021. Meanwhile, investors are now only being asked to pay 20x forward sales even though DocuSign is already generating solid free cash flow margins of 10%.

This investment is worthwhile considering. Here's why:

Revenue Growth Rates Discussed & Market Sentiment

DocuSign was one of the beneficiaries of the ''lockdown trade''. Back in early 2020, many investors crowded around the same few winners. There was a rapid movement to participate in this company's growth prospects, and back in September 2020, I too become a DocuSign shareholder (I subsequently sold for unrelated reasons).

Thus, having no skin in the game but having been a shareholder, I believe I'm best positioned to layout an unbiased discussion and make the case that its stock performance of late is nothing more than Mr. Market's whim.

Source: author's work

What's running through most investors' minds right now is that DocuSign has already put up its best performance, and that going forward, it will be up against difficult comps in 2021.

Yet, I categorically disagree with this assessment. I do allow for the fact that 2021 will obviously have really difficult comps with 2020, but this is thinking the investment through in too much of a one-dimensional plane.

Ultimately, there's an unquestionable digital transformation taking place. There's no office that has

Price Hike Coming: April 2021

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This article was written by

Michael Wiggins De Oliveira is an energy specialist whose primary focus is capitalizing on “the Great Energy Transition” - the confluence of decarbonization, digitalization with AI, and deglobalization - to achieve greater investment returns. Through his 9+ years analyzing countless companies, Michael has accumulated outstanding professional experience in the energy sector and a following of over 40K on Seeking Alpha.

Michael is the leader of the investing group Deep Value Returns. Features of the group include: Insights through his concentrated portfolio of value stocks, timely updates on stock picks, a weekly webinar for live advice, and "hand-holding" as-needed for new and experienced investors alike. Deep Value Returns also has an active, vibrant, and kind community easily accessible via chat. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

beyond growth profile picture
who owns DocMagic? wholesale lenders alway use their e-signing instead of Docusign. Is it due to pricing?
Realtors use Docusign more than lenders. Their next vertical will be interesting whatever it is..
Beerg8ggles profile picture
As a long time DOCU holder, I'm kinda pissed that all these new guys can jump in NOW and get the same bargain basement prices for what I've been holding forever!! Jk.. sorta. Glad to have more people in DOCU... this is a no-brainer.
Skyfall7 profile picture
@beerg8ggles and I wish they’d stop recommending as want to buy more.
tom117 profile picture
@beerg8ggles same here - long time holder, can't believe the bargain this is trading at now.
As A Realtor, I can’t imagine going backwards, which is what you would be doing discounting the benefits of this company. I bought on my Birthday last year after trading around the position and now holding for a super long time.
This is one of the companies that falls into the “changed methods” category, as in we have changed methods for doing _____, and we will never go COMPLETELY back to how it was before Covid. Zoom, AMZN are others that have given us changed methods for doing something. Does that mean we will use them exclusively, of course not. But anyone who thinks we are going back to face to face meetings or driving to the store to buy socks is out of touch.

So the question is how much of the changed method remains and how much do we revert? I would submit this is the correct debate to have in valuing a stock. But that is also true of the companies that have lost from the changed methods, such as airlines which will have fewer business travelers, and Office REIT’s which will have lower tenant occupancy. We aren’t going back to the way it was because the new methods are either cheaper or more convenient, or both.
By your username I’m going to assume that you’re an attorney. In the future if I ever have an attorney hand me a stack of papers to physically sign instead of just sending me an email, I’ll probably walk out of their office.
Agree on all points.
clean free cash flow? what about the $250 million in dilutive stock based compensation?
Michael Wiggins De Oliveira profile picture

that's factored into the market cap valuation, right?
Cestrian Capital Research profile picture
@nitalsando077 the stock based comp is WHY it has so much fcf b/c they pay people less in cash than they would have to do if they didn't pay them in stock. and as @Michael Wiggins De Oliveira points out, the dilutive stock issues are included in the market cap (and indeed are just an accepted practice in growth names). agree 100% with the article.
@Cestrian Capital Research Yes, but stock based compensation is usually less than 10% of the revenue in most tech names. Here its more than 20%. You have to then model that the number of shares are gonna keep increasing at say 4% or so every year
Chance888 profile picture
I was hoping this one would have dipped a little further, but I bought more anyway. Long DOCU!
arthur_bishop1972 profile picture
@Chance888 Picked up some at $192 yesterday myself.
The sheer convenience and efficiency would have made DOCU a tremendous growth stock, but they also have optionality in interesting spaces .. like e-notary, like smart contract management etc.. This will be a long term winner
I definitely agree DOCU is not primarily a pandemic stock and will have utility going forward. Mr. Market may even allow a lower entry point for DOCU as tech is quite volatile right now. Good assessment Michael. Are you considering reestablishing a position at some level?
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