Is now the time to buy DocuSign stock?

We have over 1.4 million paying customers, Documentary Sign (DOCU 3.17%) It is the world’s largest electronic signature company. It is estimated to have a share of approximately 68% in the electronic signature market.

Nonetheless, the stock is currently well below its 52-week high of $66.98 achieved last March and down from the more than $60 per share it achieved in January. The current stock price drop may be a buying opportunity, or it may be a signal to avoid the company. To find out which one, we’ll have to dig deeper into what’s going on with DocuSign.

Now would be a good time to do so, as DocuSign is scheduled to report fiscal fourth-quarter results on March 7. So, let’s take a closer look at the company and decide if it’s worth investing in.

DocuSign’s Sales Success

DocuSign stock soared in late 2023 and 2024 amid news reports that the company was in acquisition talks. However, no such deal appears to be taking place at the moment. As a result, DocuSign stock price fell.

Acquisition rumors aside, DocuSign’s ability to successfully grow its business is what could push its stock higher over the long term. The company’s revenue hit $704 million in the fiscal third quarter ended Oct. 31, up 9% from a year ago. DocuSign’s profits have been on the rise since its 2018 IPO.

Data from YCharts.

The company’s sales growth is expected to continue. DocuSign forecast fiscal fourth-quarter revenue of at least $696 million, up from $659.6 million a year ago.

Along with revenue growth, DocuSign ended the third quarter with net income of $38.8 million. This is a dramatic reversal from the previous year’s net loss of $29.9 million.

In fact, through the third quarter of fiscal 2024, DocuSign’s net income was $46.7 million, compared to a net loss of $102.3 million in the same period last year. So it looks like this could be DocuSign’s first year as a profitable company since its founding in 2003.

This is a significant milestone and comes after DocuSign hired former executive Allan Thygesen. alphabetHe became Google’s CEO in September 2022. In just one year, he helped build DocuSign’s financial health.

DocuSign’s transformation under new CEO

Mr. Thygesen acknowledged that when he took over as CEO, DocuSign “failed to fully address the changing market dynamics and sufficiently mature its operations and systems” in response to the massive demand for online services created by the COVID-19 pandemic. It fell after that lock was removed.

But he keeps his promises and has a vision for the company that seems achievable. “We see opportunities to deliver innovative new experiences beyond replacing paper signatures and to integrate more deeply with partner applications,” he said.

To that end, DocuSign announced a partnership with Facebook’s parent company. meta We have been strengthening our relationship since November of last year. microsoft We’ve expanded our electronic signature integration to more products, most recently Microsoft Power Pages.

Mr. Thygesen cited “innovative new experiences,” one of which involves contract lifecycle management (CLM). With CLM, DocuSign’s platform digitally handles the entire workflow associated with business agreements, including document creation and routing agreements for necessary approvals and reviews.

CFO Blake Grayson noted that while DocuSign does not disclose financial details related to CLM, the company’s CLM business posted double-digit year-over-year growth in the third quarter.

To Buy or Not to Buy DocuSign

Under Allan Thygesen, DocuSign generated record free cash flow (FCF) in the third quarter, reaching $240.3 million, up from $36.1 million a year ago. FCF provides insight into the cash DocuSign has available to invest in the business, pay debt, and repurchase stock. Strong FCF results enabled the company to repurchase 1.8 million shares in the third quarter.

DocuSign also ended the quarter with a strong balance sheet. Total assets in the third quarter were $3.3 billion and total liabilities were $2.4 billion. Cash and equivalents alone amounted to $1.2 billion.

From a financial standpoint, DocuSign is performing solidly under Mr. Thygesen. Moreover, the average price target for DocuSign stock among Wall Street analysts is $59.77, indicating upside potential from the stock’s current position.

Considering these factors, along with the impressive results led by Allan Thygesen and the recent decline in the stock price, now seems like a good time to buy DocuSign stock.