Stock surge for DocuSign on Friday
Docusign's Q4 Performance
The digital signature technology giant, Docusign, experienced a significant 15.4% surge in its stock price during the morning hours of Friday, following its Q4 earnings report which revealed a modest beat of expectations.
Heading into the 2025 fiscal fourth quarter report, analysts predicted Docusign would generate $0.85 per share and hit $761.6 million in sales. However, the company managed to exceed these forecasts, with earnings of $0.86 per share and sales of $776.3 million.
Grading Docusign's Q4
Sales increased by a robust 9% year-on-year, and billings showed growth of 11%, signaling even faster sales growth on the horizon. The only potential downside for the quarter could be that Docusign reported $0.86 in earnings, which was a non-GAAP figure, and real earnings based on generally accepted accounting principles (GAAP) were $0.39 per share. But considering that last year's Q4 saw GAAP earnings of just $0.13 per share, the $0.39 is still a substantial jump of 3x!
The free cash flow for the quarter also improved notably, amounting to $279.6 million.
Should You Buy Docusign Stock?
For the whole of 2024, Docusign reported a revenue of nearly $3 billion, marking an 8% year-on-year increase, with per-share earnings of $5.08. This implies Docusign stock currently sells at around 17 times its trailing earnings.
Is this a fair or expensive price?
Looking towards guidance, Docusign projects $3.1 billion in revenue for the current fiscal year 2026, indicating a growth rate of about 5%. Although management didn't provide GAAP profit guidance, the implied GAAP earnings growth in line with sales suggests the stock might be overvalued, with a PEG ratio exceeding 3.
However, the situation might be even more problematic than it seems. While management didn't explicitly discuss earnings, they did warn that the non-GAAP gross profit margins for fiscal 2026 will be lower than those of fiscal 2025 - around 81%, as compared to over 82% last year. This implies profits will likely grow at a slower pace than sales over the next 12 months, and it suggests that the stock's current price might be inflated.
In my opinion, these indicators suggest it may be wiser to sell Docusign stock at present rather than buy it.
- The surge in Docusign's stock price probably indicates investor confidence in its Q4 earnings, which exceeded analysts' expectations for both earnings per share and sales.
- Despite the growth in sales and billings, Docusign's reported earnings might be a cause for concern, as the non-GAAP figure was higher than the GAAP figure.
- With a PEG ratio exceeding 3 and projected sales growth of around 5% for the next fiscal year, the investment in Docusign might not yield as high earnings as anticipated.
- The predicted lower non-GAAP gross profit margins for fiscal 2026 indicate that profits may grow at a slower pace than sales, suggesting that the current stock price might be inflated.
