Title: Why DocuSign Saw a 28% Surge Today
DocuSign's shares saw a significant surge of approximately 28.7% by 1:13 p.m. ET on Friday, following the release of its third-quarter earnings. The company surpassed analyst expectations and projected a stronger-than-anticipated full year, leaving a positive impact on underlying metrics.
Signs of Life for DocuSign
The third quarter witnessed DocuSign chalking up an 8% revenue growth, hitting $754.8 million, while the non-GAAP earnings per share rose to $0.90. These figures were well beyond analyst expectations, and the company also projected an impressive rise in billings for the upcoming quarter. With a projected range of $870 million to $880 million in Q4, billings are expected to accelerate from the $752.3 million recorded in Q3.
The importance of billings, a metric closely watched by investors, lies in its inclusion of contract sales to new customers and renewals for existing ones during the contract period. This metric tends to garner more attention than revenue, which gets recognized over the entire life of the contract.
Is DocuSign a Buying Opportunity?
Despite surpassing its all-time lows, DocuSign's stock remains somewhat undervalued, being over 70% below its 2021 all-time high. While current investor enthusiasm is palpable, the stock is starting to look relatively pricey. With DocuSign's market cap now at $21.8 billion, taking into account its billings guidance for the year, the valuation is not excessively high but still rather steep, considering the company's mid- to high-single-digit growth rate. This could potentially hinder the chase of this massive rally, but investors who backed the turnaround story when Allan Thygesen took over as CEO in October 2022 have reaped substantial benefits.
While DocuSign maintains a strong earnings surprise history and positive estimate revisions, investors may opt to tread cautiously due to the stock's current price levelling.
Given the impressive performance of DocuSign in its third quarter, investors might be considering where to allocate their money next. With the company's share price surging and billings projected to further grow, investing in DocuSign could potentially yield high returns. However, it's important to note that despite the undervaluation, the stock's current price might require careful financial planning and consideration due to its relatively high valuation.
