DocuSign (DOCU) is poised to unveil its fiscal 2024 fourth-quarter earnings on March 7. With a solid track record of surpassing analyst estimates and its bold strategic restructuring initiatives aimed at fortifying its operational efficiency, could owning DOCU’s shares be a potentially lucrative opportunity for investors ahead of its earnings? Keep reading to find out…

After a solid third-quarter performance, DocuSign, Inc. (DOCU), a pioneering force in e-signature technology and intelligent agreement management solutions, is gearing up to unveil its fourth-quarter (ended January 31, 2024) and full-year fiscal 2024 results on Thursday, March 7, 2024.

Wall Street predicts its fourth-quarter revenue to witness a 6% year-over-year rise, reaching $699.38 million, while its EPS for the same quarter is projected to drop marginally year-over-year to $0.65. However, despite the dimmed analyst sentiment, it's worth noting that DOCU’s topline and bottom-line have consistently outperformed analyst estimates in each of the trailing four quarters.  

Moreover, the company's strides in product innovation showcase its dedication to expanding its market presence. In a groundbreaking move last year November, DOCU unveiled WhatsApp Delivery, revolutionizing its agreement process by leveraging the world's leading messaging platform.

With DOCU’s eSignature's WhatsApp integration, users receive instant, real-time notifications linking directly to agreements, ensuring swift and secure signings with unparalleled convenience.

On top of it, last month, DOCU revealed a restructuring blueprint aimed at fortifying the company's financial and operational prowess. As part of the restructuring plan, the company anticipates a workforce reduction of around 6%, predominantly affecting roles within the Sales & Marketing departments.

This strategic move is expected to yield approximately $28 million to $32 million in one-time restructuring charges, covering various expenses such as employee transitions, severance packages, and related costs. Additionally, DOCU affirmed its anticipation of either meeting or surpassing the financial guidance outlined for the fourth quarter and fiscal year 2024.

In the fiscal fourth quarter, the company projects total revenue in the range of $696 million to $700 million. Meanwhile, its subscription revenue and non-GAAP gross margin for the same quarter are expected to land between $679 million and $683 million and 81% and 82%, respectively.

With the restructuring plans promising stronger financial and operational health, institutional investors are flocking to DOCU shares, with 339 holders ramping up their stakes, reaching a total of 22,966,274 shares. Moreover, 137 holders have jumped in with new positions, accumulating to 9,421,046 shares. This surge in institutional interest is a testament to growing confidence in the company's prospects.

Over the past three months, DOCU’s shares have climbed 18.7% to close the last trading session at $54.58.

Here are the fundamental aspects of DOCU that could influence its performance in the near term:

Strong Financials

For the fiscal 2024 third quarter, which ended on October 31, 2023, DOCU’s total revenue increased 8.5% year-over-year to $700.42 million, while its gross profit grew 8.1% from the year-ago value to $557.78 million.

Moreover, the company’s non-GAAP net income came in at $163.80 million and $0.79 per share, representing increases of 38.7% and 38.6% from the prior-year quarter, respectively. As of October 31, 2023, DOCU’s cash and cash equivalents stood at $1.19 billion, up 64.7% compared to $721.90 million as of January 31, 2023.

Discounted Valuation

In terms of forward non-GAAP PEG, DOCU is trading at 0.68x, 67.3% lower than the industry average of 2.06x. Likewise, its forward EV/EBIT ratio of 14.98 is 26.1% lower than the industry average of 20.26x. Also, its forward Price/Cash Flow multiple of 13.32 is 42.9% lower than the industry average of 23.33x.

High Profitability

DOCU’s trailing-12-month gross profit margin of 79.38% is 61.4% higher than the 49.17% industry average. Likewise, its trailing-12-month levered FCF margin of 36.42% is 307.1% higher than the industry average of 8.94%. Furthermore, the stock’s trailing-12-month cash per share of $5.83 is 183.5% higher than the $2.06 industry average.

POWR Ratings Exhibit Solid Prospects

DOCU’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DOCU has an A grade for Growth, which is justified by its solid financial performance in the third quarter. Meanwhile, the stock’s B grade for Value is in sync with its lower-than-industry valuation metrics. Furthermore, its B grade for Quality is consistent with its high profitability metrics.

Within the B-rated Software - SAAS industry, DOCU is ranked #2 out of the 19 stocks.

Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all DOCU ratings here.

Bottom Line

Despite Wall Street's conservative estimates for the fourth quarter, DOCU’s prospects shine brightly, fueled by its commitment to bolstering efficiency while prioritizing investments in innovative initiatives. Moreover, the company’s restructuring drive reflects DOCU's capabilities to make critical adjustments within the company for the betterment of its shareholders and long-term success.

Apart from the aforementioned factors, DOCU’s strong financial performance in the third quarter, high profitability, and discounted valuation further enhance the stock’s appeal as an investment candidate. To that end, with further financial details about the restructuring plans expected to be revealed alongside its fourth-quarter results, it might be an opportune time to scoop up the company’s shares for potential gains.

How Does DocuSign, Inc. (DOCU) Stack Up Against Its Peers? 

While DOCU has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Software - SAAS industry: Vimeo, Inc. (VMEO), Informatica Inc. (INFA), and MiX Telematics Limited (MIXT), carrying A (Strong Buy) or B (Buy) ratings. To explore more Software - SAAS stocks, click here.  

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DOCU shares fell $0.04 (-0.07%) in premarket trading Monday. Year-to-date, DOCU has declined -8.19%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.

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About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.

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