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Sunday, February 5, 2023

Wait For Confirmation Before Signing Off on Docusign Stock

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In a prior article, I said that Docusign (NASDAQ:DOCU) was a company that will continue to grow regardless of the pandemic. Secure, electronic signatures are simply an idea whose time has come. And it has become essential technology for many online businesses. But should you buy Docusign stock at its current price? The technicals are suggesting it’s not.

DocuSign Stock May Be Overdone, but It's Still a Great Long-Term Buy

Source: Sundry Photography / Shutterstock.com

However, I like to analyze stocks as investments, not trades. So let’s take a look at the long-term case for Docusign.

It Just Makes Sense

Signing loan papers, filling out medical forms, and signing mortgage documents are all examples of things we are doing much more efficiently with Docusign. And I use the word efficiently on purpose. In my opinion, the pandemic has been the cherry on top of the Docusign benefit sundae.

Penmanship is a dying art. In many of our schools, kids are using Chromebooks or iPad’s from middle school onward. Some are even having them introduced in elementary school. This means from the time most children are teenagers, there’s very little reason for them to sign their name to anything. Period. And they almost resent it when they have to. I know. I have three kids from 21 to 14 who look at signing forms as medieval punishment.

Then you factor in that pens and paper no matter how remotely may allow the transmission of a novel virus. And you have Docusign stock posting a 183% gain in 2020 as of this writing.

What Have You Done For Me Lately?

But we live in a world where investors are more short-term focused than ever before. And over the past month, Docusign stock has done a whole lot of nothing. And that has some investors thinking that maybe the stock is ready to roll over. Josh Enomoto made that very case by looking at the company’s stock chart.

This is where the company’s business case is a double-edged sword. On the one hand, Docusign stock is not a one-year wonder. Investors were already getting rewarded with a gain of approximately 85% in 2019. And the stock was chugging along at about a 20% growth rate when the pandemic hit.

The rest is history. But now the question is has the stock priced in all of its gains? I think that’s possible. But I still like the long-term outlook for the stock.

The War on Paperwork Will Benefit Docusign Stock

In the last few weeks, I’ve been having to, I find myself grudgingly, filling out paperwork for my daughter’s high school. And without even thinking about Docusign, I couldn’t help but wonder if that could be done more efficiently? There may be hurdles to overcome for K-12 schools to move to electronic record management, but I imagine that day is coming. But will Docusign be part of that future?

How Big Is Docusign’s Moat?

Here’s the largest question I have about Docusign. For all the ways we are becoming a digital society, what is Docusign’s role in that? Docusign is ideal for its core business which is helping businesses and consumers manage electronic agreements. And in that case the company has a huge first market advantage. But the company has competition from a number of companies including from Adobe (NASDAQ:ADBE).

And with that being the case, can Docusign learn new tricks? There are companies like Paycom (NYSE:PAYC) that are helping businesses automate a lot of their records. And that makes you wonder if it would be easier for a company like Paycom to get into Docusign’s line of work, or will Docusign be able to broaden out into becoming a more robust software provider?

In summation, I think Docusign is very good at what it’s very good at. But Docusign stock is probably overvalued right now. The technology isn’t going away, and I would expect modest growth. But, for now, that growth looks priced in. This isn’t a bad stock to own, but you can wait for a cheaper price.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. 

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