Will the market approve a comeback for DocuSign stock?

Documentary Sign (DOCU 0.53%) Loved during the pandemic. We were well-positioned to facilitate online document management when people couldn’t meet in person.

As life returned to normal, growth slowed and stock prices fell significantly. It has lost 80% of its value and remains in a bear market more than a year after bear markets ended in other tech stocks.

Nonetheless, DocuSign’s growth hasn’t completely stopped and the company hopes to gain a competitive advantage by focusing on contract lifecycle management. The question for investors is whether there will be enough buyers to return to this one-time high.

Status of DocuSign

During the pandemic, DocuSign showed that the practice of signing documents in person has become nearly obsolete.

Unfortunately, the question for the company is how much SaaS stocks can benefit from trend-leading innovation. Amid DocuSign’s pandemic popularity, prominent software companies such as adobe (ADBE 0.11%) and drop box By entering this business, we have significantly raised the level of credible competition.

So DocuSign turned to the aforementioned contract lifecycle approach to rebuild its competitive advantage. To that end, it has just announced its intention to acquire Lexion, a company that can integrate artificial intelligence-based contract management technology into its ecosystem.

Global market researchers at Fortune Business Insights forecast the global document management systems industry to grow at a compound annual growth rate (CAGR) of 17% by 2032. Unfortunately for DocuSign, it’s unclear how much of this strong market it can capture in an increasingly competitive industry.

DocuSign’s Financials

For fiscal 2024 (ending Jan. 31), DocuSign reported revenue of just under $2.8 billion, 10% higher than the previous fiscal year.

Fortunately, the company slowed operating expense growth to 4% during the period, resulting in net income of $74 million. This is a significant improvement over the $97 million loss incurred during the same period in fiscal 2023.

Investors appear to have responded positively. The stock is well below the high of $314 per share it achieved in 2021, but is still up nearly 25% over last year.

Nonetheless, the decline in sales growth is not expected to stop in the coming fiscal years. The company’s official forecast calls for revenue to be just over $2.9 billion, or about 6% annual growth if the forecast holds. While not a collapse, a recession can be painful for stocks with growth-oriented investors.

Not surprisingly, valuations may reflect some of this slowdown. As a company generating new revenue, DocuSign’s current P/E ratio is unlikely to be a meaningful indication of the company’s value. Nonetheless, the company’s forward P/E ratio is just 19, making it more of a value stock than a growth investment.

Should I Buy DocuSign?

DocuSign looks increasingly like a solid buy for value investors.

Of course, growth stock investors will likely continue to avoid stocks as earnings growth falls into the single digits. These growth rates probably won’t be enough of a catalyst for a return to all-time highs in the near future. Additionally, despite the shift to contract lifecycle management, competition may limit revenue growth.

But DocuSign is back in the black, and its revenue is still growing, so profits should only get higher over time. DocuSign also offers the added benefit of being a document expert, giving you a higher level of trust with your customers and investors than using a general software company like Adobe.

When investors also consider low forward earnings multiples, they can see the potential for market-beating returns.