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DocuSign Stock Rally Hits a Pause

Shares of the e-signature provider DocuSign (DOCU) are down about 8.5% in the last three months. The weakness in DocuSign is due to the sequential slowdown in growth rate, and tough year-over-year comparisons. 

Interestingly, DocuSign witnessed a stellar demand for its products amid the pandemic. Thanks to favorable industry trends, DocuSign stock surged nearly 200% in 2020. 

However, the economic reopening, and normalization in demand trends weighed on DocuSign stock. DocuSign’s top-line growth slowed to 50% in Q2 from 58% in Q1. Further, its billings growth rate moderated to 47% from 54% in Q1.  

As for Q3, DocuSign expects its revenue to increase by 37% to 39% year-over-year, indicating a further deceleration in growth rate. Billings are projected to increase by 33% to 36%, a much slower pace than Q2.  

Owing to its moderating growth rate, investors maintain a Very Negative outlook on DocuSign stock. TipRanks’ Stock Investors tool shows that 6.8% of investors who hold portfolios on TipRanks have cut their exposure in the last 30 days.

See Top Smart Score stocks >>

While DocuSign’s Q2 revenue growth rate moderated, it remained higher than the pre-pandemic levels despite being up against tougher comparisons. 

In response to DocuSign’s moderating growth, Scott Berg of Needham said that the deceleration was “at a much slower rate” than the Street’s expectations. Berg expects DocuSign to exceed sales expectations. 

Berg has a Buy rating on DocuSign stock, and a price target of $340 (21.5% upside potential). 

Along with Berg, the majority of analysts maintain a favorable view on DocuSign stock. It sports a rating consensus of Strong Buy, based on 15 Buys and one Hold.

However, DocuSign scores only a 7 out of 10 from TipRanks’ Smart Score rating system, implying it will likely perform in line with the market.

The average DocuSign price target of $336.36 implies 20.1% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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