DocuSign is an expensive stock, this investor says

It’s the question on the minds of many investors: how will the pandemic stocks do once things get back to (semi)-normal? And one company smack dab in the middle of that issue is e-signature and electronic agreements business DocuSign (DocuSign Stock Quote, Chart, News, Analysts, Financials NASDAQ:DOCU), which saw its share price went through the roof last year as the world hunkered down in the COVID year.

What will happen to the stock in 2021? Portfolio manager Christine Poole says while the company may keep growing, investors need to focus on the growth rate which is unlikely to keep rising the way it did last year.

“The stock has done incredibly well,” said Poole, CEO of GlobeInvest Capital Management, who spoke on BNN Bloomberg on Tuesday. “They saw very huge growth rates in their subscriber base because as we all know digital electronic signatures really blossomed last year.”

“We do think that growth will continue but the stock is one of those growth momentum stocks, and I think while the company will still grow in terms of revenues and earnings —right now there aren’t a lot of earnings as they’re reinvesting in their business— but the rate of growth may slow this year,” she said.

“And so I think just given where the valuation is, it’s very elevated, I wouldn’t be buying the stock right now. I would wait for further pullbacks. That second derivative is really important for these high-growth momentum names,” Poole said.

The final tally on DocuSign’s 2020 just came in last week when the company announced its fourth quarter fiscal 2021 financials for the period ended January 31, 2021.

DocuSign management called it a milestone year for the company.

“We became a pillar of the ‘anywhere economy’ that lets people increasingly do anything in life and work from anywhere,” said CEO Dan Springer in a March 11 press release. “In the process, we grew our business nearly 50 per cent, reached almost $1.5 billion in revenues, and achieved a record net retention rate of 123 per cent. We believe this performance represents an acceleration of the ongoing trend towards the digital transformation of agreements.”

Fiscal fourth quarter revenue for DocuSign hit $430.9 million, up 57 per cent year-over-year, with subscription revenue taking up $410.2 million of that figure and professional services making up the remaining $20.7 million. Non-GAAP net income per diluted share was $0.37 compared to $0.12 per share a year earlier. Both those top and bottom numbers beat analysts’ estimates, which were calling for Q4 revenue of $408 million and EPS of $0.22 per share. (All figures in US dollars.)

This year, Docusign’s share price has fallen off some along with a number of tech-related names that benefitted from the COVID-19 stay-at-home environment. After finishing 2020 up an amazing 200 per cent, DOCU is down five per cent in 2021.

How does Docusign see its new fiscal year turning out? Management has guided for full fiscal 2022 revenue of between $1.963 and $1.973 billion compared to the fiscal 2021 result of $1.5 billion. That puts its revenue growth rate at around 31 per cent for the fiscal 2022 year, which would be down sharply from the 49-per-cent growth rate achieved in fiscal 2021.

Still, that drop in revenue growth rate apparently didn’t come as a surprise. In fact, analysts had been predicting a steeper drop-off, with the consensus call for Docusign’s fiscal 2022 revenue guidance pegged at $1.89 billion.

Docusign has said it expects its pipeline to grow in early fiscal 2022 at a rate similar to the start of the last fiscal year, while at the same time the company struck a note of caution in the fourth quarter conference call.

“Coming into this fiscal year, we expect to see continued secular tailwinds in support of the anywhere economy,” said Docusign CFO in the company’s Q4 conference call. “We are confident in our long-term trajectory and the untapped opportunity ahead. That being said, while our subscription-based model gives us a certain level of visibility, the impact of the pandemic adds an extra layer of complexity, which we are monitoring closely.”

International revenue for the fiscal Q4 grew by 83 per cent to $89 million, while for the full fiscal 2021 year it grew by 67 per cent. So, while still a small piece of the pie for Docusign, the international market seems like the next growth area after the US.

“We don’t think there’s a particular type of geography, either the common law or civil law or sort of EMEA versus Asia Pac, we’re just seeing it across the board,” said Springer in the conference call. “My view is what’s happening here is actually quite interesting. If you think about a year ago, we shared this result where we sort of laid the growth of DocuSign in the US over its size when it was same size where international business was and looked at that growth, and they’re actually quite close.”