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We Move Back To Buy On DocuSign

Dec. 04, 2021 1:59 AM ETDocuSign, Inc. (DOCU)81 Comments


  • DocuSign stock peaked in August this year, began a modest correction and then positively dived into the abyss following its Q3 earnings this week.
  • We believe the stock is once more at an attractive buy point.
  • Fundamentals remain very strong - and we think the correction augurs well technically.
  • We rate the stock at Buy on a long-term hold basis. We could yet see a further drop, so in staff personal accounts we are adding stepwise rather than betting the farm.
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DocuSign headquarters building

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Cestrian Capital Research, Inc. is an independent, SEC-regulated investment research business led by CEO Alex King. Alex is a professional investor with 3 decades of experience. Cestrian specializes in covering growth stocks, index ETFs and index options, long-run investing, swing trading and risk management via hedging.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of DOCU either through stock ownership, options, or other derivatives.

Business relationship disclosure: See disclaimer text at the top of this article.

Cestrian Capital Research, Inc staff personal account(s) hold long position(s) in DOCU

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Comments (81)

crrj profile picture
Buffet bought a nat gas pipeline----shhhhhhhhh

and exxon trades at 1 x sales

Apple is 7x sales

DOCU is 26 x sales ?????
Cestrian Capital Research profile picture
@crrj Seriously what is your point here?
@crrj have to allow for growth capability, real debt, etc. Not apples to apples. In any case. I traded exactly as listed on Friday and it was quite a day on DOCU ;)
@Cestrian Capital Research I didn't want to say that - but thank you.
crrj profile picture
At $60, its still 12 x sales lol

at $30 its still 6 x sales????

crrj profile picture
buffet bought BAC after 50% drop at $20-----it went to below $6
bluescorpion0 profile picture
@crrj good point. even the best can't time the fall. buyer beware.
@crrj Yeah and it's Berk's biggest holding and is up 700% since then... so?
Recently we switched from DocuSign to HelloSign due to cost and more favorable terms. For us, it took a pandemic to draw attention to the cost and I would imagine other businesses will be looking at this as well.
Cestrian Capital Research profile picture
@Eli Shapiro Any major differences in functionality, usability, support etc?
beyond growth profile picture
@Eli Shapiro Hellosign is part of DropBox. not a huge difference for signing documents. You have to remember most millenials and maybe you will spend $5-10 daily on a mocha latte at SBUX. Slightly higher cost is worth it when you are very comfortable with the product for years. Like AMD vs INTC ,NVDA vs INTC, a Lexus vs Toyota (or Toyota vs Hyundai) , Mercedes vs Chrysler
bluescorpion0 profile picture
@Reddington opentext also has esign. and is huge in content management.
I'll confess to not always agreeing with Cathie Woods' choices - but the woman bought 3/4 million shares. The company is buying a ton on Tuesday. After a 42% drop... sorry - just not buying the doom (yet anyway). Futures all look good for the a.m. and foreign markets all look good so far at open. VIX is down almost 3%... I'll confess to holding a LOT of this stock at closing price and nothing so far is making me question that call.
Out_on_a_limb profile picture
The ADBE meme is annoying to death. PostScript is not a good language for information retrieving. CLM will be used for that to start with. But what will matter more to the lawyers is being able to crank out more documents quickly. Because they are paid dearly for doing this, rather than managing archives which is a marginal service to them. CLM can become a smarter automation tool than Word.

I doubt ADBE will go toward CLM due to its culture and PostScript legacy, it is a company based on designing documents (layouts, graphics, pixels, animation), e.g presentation. While here, it is about content.
nice litany of the virtues of software and all its yet to do with a segue into elliot wave nonsense but im not seeing how any of this helps a company with no moat run by a ceo who admits to sitting on his butt too much instead of generating demand for his product!
Cestrian Capital Research profile picture
@jeffk100 We don't care about helping the company. We only care about trying to work out the medium term trajectory of the stock price. Which is where the nonsense comes in handy.
@jeffk100 Roundung out the few lowered metrics for NEXT quarter you get essentially 3% decline...for a quarter that ends in 4 months... I'll take a CEO who takes responsibility and targets deficiency, then acts. A 42% drop shows the age / mindset of retail investors these days... someone above points out Buffett buying BAC then watching it fall again... except it... and the stock is up 700% since the quoted $6 sp - which I can't verify.
Go and do likewise profile picture
How does this impact DOCU? From Forbes in July 2021

I covered Box's acquisition of eSignature platform SignRequest earlier in the year. I believe the acquisition of SignRequest was a smart move for Box by including the final puzzle piece needed to enable a truly all-in-one experience for managing enterprise content without building an eSignature tool from the ground up....and one aspect that surprised me is that it doesn't plan to use the same business model as other eSignature tools...
Box is implementing Box Sign into its Box platform at no extra cost to the more than 100,000 Businesses that already use Box Content Cloud...Box platform users have unlimited native e-signatures for all users of the Box Core Subscriptions.

beyond growth profile picture
I'm not a great chartists but I also noticed DOCU was extended and making lower lows / lower highs in an environment where if you're not part of the Big 6 tech leaders you get pummeled. I sold 1/10th of a position at $260 2 weeks prior and I bought a put 2 days before earnings. this may get to the low 90s or 100s and I'll buy OTM calls then. All the headwinds in front of us tell me the market is not a time to commit loads of cash.
@Reddington exactly, just wait, let it base first, establish its low. Money is flowing to defensive sectors now. Sector rotation is now
PrivacyFiber-Safe from Eavesdroppers profile picture
I am not a Docusign fan. Since executing a few documents, I seem to get all kinds of Phishing emails, with Docusign - which raise concerns over security to me. I like the utility of the company, but somewhere there is a leak on possibly a transmission fiber inbound or outbound from their data center and email addresses are being harvested or it just could be coincidence but it has potential especially if they begin adding bio-metrics to compound the assurance that the signature is of that individual and not just a digital copy.
beyond growth profile picture
@PrivacyFiber-Safe from Eavesdroppers DOCU's biggest flaw:
husband and wife are to sign documents and each gets an emailto sign. What if one spouse has the others email pw? Same for partners in a company.
It's not ID safe at all. There's more authentication when you log into Coinbase or your online bank acct.
Please educate me: I purchased real estate in 2020 and leased several storage units in 2020 and 2021 and – in my case – all used e-signature software but NOT DocuSign.

Isn't e-signature of documents a commodity business? Is the software for DocuSign patented or a wiz bang in some aspect?

Why would one prefer DocuSign software or to buy DocuSign stock over the others?
@davidlifter2 my understanding is docusign places the documents for review and signatures electronically instead of via the old paper mode. Esignatures are an electronic version of just signing. Docusign is just a bit more than that, in that the suite of executed documents are stored for future review and modifications as needed. The software does away with physical printing, and storing of documents. DOCU part of its name explains the documents presented electronically and sign part of it their execution without having to physically print and sign as earlier. Idea being saving of paper, printing, and storage in physical mode and all of these functions switched online, with ease of future reference provided. I am not sure of any competitor with such a long history or size as docusign is. Would love to hear some critique on whether they are in a commoditized biz or it is just the beginning of a phenomenal new trend. GLTA.
bluescorpion0 profile picture
@spinlessandfactful is it a document storage company like Iron Mountain?
beyond growth profile picture
@davidlifter2 You may have used DocMagic.
r Negoro profile picture
The more it drops, the more it will be tax harvested. My call, it will drop another 15 pct. Almost every high growth is a falling knife. The reason it dropped a lot is because the market perceives it as a reverse wfh.
All the comments to this well written article screams of a buyout soon. Microsoft can integrate them to their Windows Suite, which would be accretive immediately.
@Bogie 1 Exactly! I can't understand why they have not been bought and MSFT is a perfect connection. They also fit with any FinTec stock where DocuSign is widely used. Banks should buy them but they are too stupid.
nathanlane profile picture
@eager1 You mean banks strategy too cheap
Go and do likewise profile picture
Thought this was interesting from Wasteland Capital.

"$DOCU managed to issue 11.2 million shares to employees during the last 12 months, which at yesterday’s price would be worth $2.60 billion. Their sales during the last 12 months were $1.96 billion, so they had to give away $1.3 in shares for each $1 in revenue."

3:50 PM · Dec 3, 2021
Cestrian Capital Research profile picture
@Go and do likewise If you start looking you can find a lot of names like that.
Cestrian Capital Research profile picture
@Go and do likewise NB wish we had thought of the name "Wasteland Capital" first. That's awesome!
No Guilt profile picture
Obviously we aren’t going back to pen and paper but that doesn’t mean the company is worth $40 billion.

I did but a small starter position yesterday as this company is on my watch list. They have an amazing tech, earnings are greeting up and to the right, SAAS margins and honestly I think there’s more than just Docusigning something electronically. There is now but I think they have even more bolt on opportunities they haven’t even offered yet. “Digital Transformation”.

So if the stock goes up I didn’t miss out, if it drops another 40% due to the overall market or a miss I can always add to the starter position. No need to go all in at once.
My take is this will be "dead money" until they can prove (earnings cycles, so a quarter maybe two) that this quarter was a one-off. I like DOCU, but there are better (similar) stocks that I think will outperform it, so, for relative outperformance, I sold half my position (cost basis around $60) and put in limit orders on other stocks that have come way down (not saying on sale) - ZS and CRWD... the IT security hack/breach tailwind is just so big, this is the opportunity to continue to build out those positions.
@canyon would you mind sharing what you’ve set your limit orders for? My cost basis on CRWD is 171 and while I have full conviction in their execution one has to wonder if the changing macro climate is going to cause some of these high fliers to have lower relative valuations? My plan is to watch from the sidelines until the dust settles. Interesting that ZS hasn’t nearly sold off as much as CRWD.
Cestrian Capital Research profile picture
@Let The Led Out ZS is much earlier in its maturity cycle than is CRWD in our view. (Long ZS, sold out of all CRWD over last few weeks).
@Let The Led Out
Sure, glad to share. Note, in ZS I have a nice start to a position with a cost basis around $60... but what to add. Same for having started a nice position in CRWD but my blended cost basis is right around the current price.

Limit orders:
CRWD $152
ZS $235

These are set using some easy TA, and noting I have already started positions a while ago... if I currently owned zero shares I would start with a small purchase now and DCA into the bigger holding adding at those levels (nearly blood in the street levels that I suspect we might not see, but if we do...).
2959 profile picture
I don't know, a +40% drop? Oversold or just finding it's correct value? I've used and continue to use them as an end user (even prior to Covid) specifically for Real Estate transactions. That said, it again looks like Foreclosures/sales are looming in the near future. I've been looking for an entry point on this for sometime. I was going to add to Apple's pullback (yes, I get Apple pays a dividend to hold, and Dividend reinvestment has been great) but then on Friday decided on this instead (small lot). But this is for me, I'm not buying for Clients or Institutions so I don't need to explain losses etc. Down further or Up? That could be anybody's guess, but I have no timeframe requirements. Guess I'm more of a Contrarian. Been wrong before, I did own GE. But luckily I've been right more often.
No Guilt profile picture

Agreed, DOCU has always been on my watch list. Sad I didn’t buy it 4-5 years ago.

I wasn’t planning on buying but sometimes you have to deviate from your plan and take what the market is giving you.
It’s a screaming buy. The sell off or percent drop doesn’t matter to me. What matters is how long will it take for the company to right the ship. CEO took full blame for the misstep on CNBC yesterday. He got on national TV and did what every CEO should do. Explain everything. Coming out of the pandemic he was looking for a softer landing. That didn’t happen. He expects the next quarter to have everything back to normal. If you are a long term or medium term investor start buying
No Guilt profile picture

A lot of CEOs don’t fall on the sword.
@No Guilt yes that why I says he did what other CEOs SHOULD do. Even the moderator of the show was surprised he took full blame that’s a CEO I can trust. The CEO of any company is a major factor in my decision to buy a stock and this guy won me over completely
bluescorpion0 profile picture
You cannot say rotten fruit is ever on sale. It isn't a bargain at almost any price.
What do they have? a commodity way to stamp your prints. Big deal. Without diversifying into RPA or other value added services like escrow or authentication it seems a one trick pony that is still severely overpriced.
No Guilt profile picture

Have you ever used the competition? They suck.
Cestrian Capital Research profile picture
@scorpion.north (1) Why so annoyed? It's just a stock. (2) The gross margins and cashflow margins tell you it isn't commoditized.
bluescorpion0 profile picture
@Cestrian Capital Research My apologies. i lost 19% on a tiny position. But i'm a perfectionist so I'm pissed.
This stock will go as low as 100$ as end of the year selling pressure will happen to benefit from tax reduction. So wait till January before buying any fallen stock
No Guilt profile picture

I hope so
@Mudi68 I saw plenty of short available out there. If that's the case that's a heck of a downward score in 30 days. If I believed that I'd be shorting on margin... you may be right, but I don't think this market is ready to cave just yet. There is still enough buy the dip mentality out there too. A 42% dip on a 12 figure company will be hard to resist I think.
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