DocuSign (DOCU) is set to unveil its fiscal 2024 fourth-quarter earnings on March 7. With a strong track record of beating analysts’ estimates and its bold strategic restructuring initiatives aimed at strengthening its operational efficiency, could owning shares of DOCU be a potentially profitable opportunity for investors ahead of its earnings? Read on to find out….
After a solid third quarter performance, DocuSign, Inc. (DOCUMENT), a pioneering force in electronic signature technology and intelligent agreement management solutions, is preparing to unveil its fourth quarter (ended January 31, 2024) and full year fiscal 2024 results on Thursday, March 7, 2024.
Wall Street expects fourth-quarter revenue to increase 6% year-over-year to $699.38 million, while EPS for the same quarter is expected to decline marginally year-over-year to $0.65. However, despite the weak analyst sentiment, it’s worth noting that DOCU’s top and bottom lines have consistently outperformed analyst estimates in each of the trailing four quarters.
Additionally, the company’s strides in product innovation demonstrate its dedication to expanding its market presence. In a groundbreaking move last November, DOCU introduced WhatsApp Delivery, revolutionizing its contracting process by leveraging the world’s leading messaging platform.
With DOCU eSignature’s WhatsApp integration, users receive instant, real-time notifications that link directly to agreements, ensuring fast, secure signatures with unprecedented convenience.
Additionally, last month, DOCU revealed a restructuring project aimed at strengthening the company’s financial and operational capacity. As part of the restructuring plan, the company expects a headcount reduction of approximately 6%, which will mainly affect roles within the Sales and Marketing departments.
This strategic move is expected to generate approximately $28-32 million in one-time restructuring charges, covering various expenses such as employee transitions, severance packages and related costs. Additionally, DOCU said it expects to meet or exceed financial guidance outlined for the fourth quarter and fiscal 2024.
In the fiscal fourth quarter, the company expects total revenue of $696 million to $700 million. Meanwhile, subscription revenue and non-GAAP gross margin for the same quarter are expected to be between $679 million and $683 million and 81% to 82%, respectively.
With restructuring plans promising greater financial, operational and institutional health Investors are flocking to DOCU stock, with 339 holders increasing their holdings, reaching a total of 22,966,274 shares. Additionally, 137 holders entered with new positions, for a total of 9,421,046 shares. This increase in institutional interest is a testament to growing confidence in the company’s prospects.
Over the past three months, DOCU shares rose 18.7% to close the latest trading session at $54.58.
Here are the key aspects of DOCU that could affect its performance in the short term:
Strong financials
For the third quarter of fiscal 2024, which ended October 31, 2023, DOCU’s total revenue increased 8.5% year-over-year to $700.42 million, while its gross profit grew 8.1% from its a year ago at $557.78 million.
Additionally, the company’s non-GAAP net income came in at $163.80 million and $0.79 per share, representing an increase of 38.7% and 38.6%, respectively, from the year-over-quarter previous. How about October 31, 2023, DOCU cash and cash equivalents stood at $1.19 billion, up 64.7% from $721.90 million on January 31, 2023.
Discounted rating
In terms of forward non-GAAP PEG, DOCU trades at 0.68x, 67.3% lower than the industry average of 2.06x. Likewise, its forward EV/EBIT ratio of 14.98 is 26.1% lower than the industry average of 20.26x. Furthermore, its forward price-to-cash flow multiple of 13.32 is 42.9% lower than the industry average of 23.33x.
High profitability
DOCU’s trailing 12-month gross profit margin of 79.38% is 61.4% higher than the industry average of 49.17%. Likewise, its trailing 12-month leveraged FCF margin of 36.42% is 307.1% higher than the industry average of 8.94%. Additionally, the stock’s trailing 12-month cash per share of $5.83 is 183.5% higher than the industry average of $2.06.
POWR Ratings Show Solid Outlook
DOCU’s solid fundamentals are reflected in his POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our proprietary rating system. POWR Ratings are calculated by taking into account 118 distinct factors, with each factor weighted optimally.
Our proprietary rating system also evaluates each security based on eight distinct categories. DOCU has an A grade for growth, justified by its solid financial performance in the third quarter. Meanwhile, the stock’s B grade in terms of value is in sync with its lower-than-sector valuation metrics. Furthermore, its B quality grade is consistent with its high profitability parameters.
Inside class B Software-SAAS sector, DOCU is in 2nd place out of 19 titles.
In addition to what was stated above, we also evaluated the stock in terms of Momentum, Stability and Sentiment. Get all DOCU ratings Here.
Bottom line
Despite Wall Street’s conservative estimates for the fourth quarter, DOCU’s outlook shines brightly, fueled by its commitment to strengthening efficiencies by prioritizing investments in innovative initiatives. Additionally, the company’s restructuring drive reflects DOCU’s capabilities to make critical changes within the company for the betterment of its shareholders and long-term success.
In addition to the factors mentioned above, DOCU’s strong financial performance in the third quarter, high profitability and discounted valuation further increase the stock’s attractiveness as an investment candidate. To that end, with further financial details on the restructuring plans expected to be revealed alongside the fourth quarter results, it may be an opportune time to scoop up the company’s shares for potential gains.
How does DocuSign, Inc. (DOCU) Can it hold its own against its peers?
While DOCU has an overall grade of A, equivalent to a Strong Buy rating, you can also check out these other stocks within the Software-SAAS sector: Vimeo, Inc. (VMEO), Informatica Inc. (INFA) and MiX Telematics Limited (MIXED), rated A (Strong Buy) or B (Buy). To explore additional Software titles: SAAS, Click here.
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DOCU shares fell $0.04 (-0.07%) in pre-market trading on Monday. Year to date, DOCU has fallen -8.19%, compared to a 7.90% increase in the benchmark S&P 500 index over the same period.
About the author: Anushka Mukherjee
Anushka’s ultimate goal is to provide investors with essential knowledge that enables them to make well-informed investment choices and achieve sustained financial prosperity over the long term.
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