2022 will be a bad year for tech holdings — there’s no doubt about that. The Nasdaq Composite has fallen more than 30% since the start of the year, meaning the Nasdaq is currently in an undeniable bear market. (Technically, you really only need a 20% drop to become a bear market.)
And it’s going to get worse.
The Nasdaq may be down 30%, but individual Nasdaq stocks have fallen far more. Case in point: e-signature company DocuSign (DOCU 6.58%) — the company that lets you sign contracts and mortgage securities online — is down 62% year-to-date. While tech stocks are in a bear market, DocuSign is in a double bear market.
However, this could be good news for investors who have been waiting for an opportunity to buy DocuSign at a bargain price. To find out why, let’s look at the numbers.
DocuSign currently has a market capitalization of $11.8 billion without a price-to-earnings ratio because the company doesn’t have a “P”-i under generally accepted accounting principles (GAAP). H. Technically, it’s not “profitable”. In fact, DocuSign is a very profitable company, generating nearly $500 million in cash profit — free cash flow — in the past year alone.
By the way, I’m not the only one who thinks this way. In fact, DocuSign’s CEO seems convinced that DocuSign’s current sub-$60 share price is also a big deal. We know this because in January 2022, when the tech sell-off was just getting started, DocuSign CEO Daniel Springer pledged to buy DocuSign stock for his account for $2.4 million — – The stock price was as high as $147.
As DocuSign stock continued to fall, Springer doubled down on the bet in March, spending another $5 million on DocuSign stock at a whopping $76.45.
It’s June, and DocuSign’s shares are down another 20% — selling for less than half the price the CEO paid when he first bought the stock in January. (Incidentally, I kind of suspect Springer is blaming himself for not waiting to start buying. At this point, he might even be a bit cash-crawling and can’t buy more.)
But that doesn’t mean you can’t. In fact, I think now might be a good time to buy before DocuSign stock surges again.
Electronic signatures are the future
Consider this: DocuSign stock has fallen sharply since last week’s earnings call, but those gains are far from bad. Revenue is up 25% year over year, if you (like me) assume that as DocuSign grows, profit margins will increase rather than decrease or stay the same, suggesting that DocuSign’s revenue will grow over time and should grow more than revenue faster — and the company will beat analysts’ forecast for earnings growth of just 16.5%.
That’s exactly what happened if you looked at the company’s cash flow statement for the last quarter. Although DocuSign remains technically unprofitable, free cash flow rose 42% in the quarter.
Right now, many investors appear to be betting that DocuSign’s growth is some kind of pandemic fluke — and as a result, DocuSign stock is suffering. But if you ask me, what the pandemic has really taught us is that remote work can be just as productive—or more—effective than in-office work. With more and more business being conducted online, it is only logical that electronic signatures will be the way most documents are signed in the future.
As the e-signature market leader with a 70% market share in the US, DocuSign seems like the right way to capitalize on this trend. If we can do this while paying a cheap price — less than half what the CEO paid for DocuSign stock — that’s the deal I’d like to make.
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