Over the past year, investor sentiment has been beaten down by macroeconomic headwinds. While each of the major stock indexes suffered from the downturn, the Nasdaq Composite alone remains mired in bear market territory, down 31% from its late-2021 peak. A great many individual stocks have fallen even further.
Yet even as the economic clouds linger, there’s a silver lining for investors. Some of the most beaten-down stocks still represent compelling opportunities, not only because of their significant business prospects but also because of their historically low valuations.
One particularly intriguing bear market bargain staring investors right in the face is e-signature specialist DocuSign (DOCU 3.86%). In just over three years, the stock had soared over 700% before the bottom dropped out. Docusign has since been pounded by tough comps and the prevailing headwinds. Focusing too closely on the present circumstances, however, can obscure the big picture. Those who step back will see they should be buying this stock like there’s no tomorrow.
Sign on the (electronic) dotted line
Even before its heady, remote work-fueled growth, DocuSign was already a rising star. Not every situation lends itself to an in-person signature, which previously required sending documents overnight to be ratified — and returned. An electronic signature — or e-signature — represents a much more convenient and cost-effective way to do business, and DocuSign is the undisputed leader. While estimates vary, the company controls a dominant 75% share of the market, according to data compiled by Deloitte.
Investors might be tempted to conclude that demand for digital signatures — and by extension, DocuSign — peaked during the pandemic, but evidence suggests otherwise. The digital signature market was estimated at $4 billion in 2022 and is expected to grow to more than $35 billion by 2029, representing a compound annual growth rate (CAGR) of 36%. As the recognized brand and industry leader, DocuSign is well positioned to capture a significant portion of that growth.
That’s not all. The e-signature market is still in its infancy and continues to expand beyond its initial use cases. For example, the need for verified digital identities has never been greater, a service that goes hand in hand with the e-signature.
Enterprises and regulators are increasingly requiring a “trusted identity” to accompany the digital signature, particularly on official or legal documents. DocuSign Identity services provides e-signature verification, identify proofing, and authentication, helping expand the market beyond digital signatures alone.
We have an agreement
Perhaps the biggest opportunity, however, is DocuSign’s foray into contract lifecycle management (CLM). In early 2019, the company introduced the DocuSign Agreement Cloud to help organizations make the entire agreement process more efficient. This includes applications that address a vast array of contract management challenges, including preparing, signing, acting on, and managing agreements. Examples of this process include offer letters from human resources departments to job candidates or sales contracts between buyer and seller.
DocuSign has expanded its capabilities to include artificial intelligence (AI) and contract analytics. Within the Agreement Cloud, users can quickly search among a large collection of contracts focusing not just on keywords but legal concepts as well. Furthermore, the system and its sophisticated algorithms can extract, analyze, and compare contract terms, saving the user time and money. Its advanced capabilities go even further, identifying areas of risk or potential opportunities for businesses.
As a result, DocuSign has quickly become a force in the business, but don’t just take my word for it. DocuSign was named to the vaunted Gartner 2022 Magic Quadrant as a leader in CLM for the third consecutive year. The company was rated highest among the 18 solutions evaluated for its ability to execute. It was also rated highly on its completeness of vision.
Management estimates the CLM market opportunity at $25 billion, bringing DocuSign’s total addressable market (TAM) to more than $50 billion. For fiscal 2023 (which ends Jan. 31), DocuSign’s revenue is expected to be in the neighborhood of $2.5 billion, which helps underscore the magnitude of the remaining opportunity.
Prevailing headwinds won’t last
To be clear, DocuSign has faced a number of challenges over the past year. The company experienced a robust growth spurt, fueled by pandemic-related lockdowns and remote work, which has since abated.
Additionally, the macroeconomic headwinds haven’t done DocuSign any favors with businesses reining in discretionary spending. In its fiscal 2023 third quarter (ended Oct. 31), revenue of $646 million grew 18% year over year, resulting in adjusted earnings per share of $0.57, on par with $0.58 in the prior-year quarter. Furthermore, DocuSign’s former CEO Dan Springer departed abruptly last June, replaced by Alphabet‘s former Google president Allan Thygesen, who took the helm in October.
Those issues aside, DocuSign stock is poised for a significant rebound once the economy stabilizes. It currently trades for roughly 4.6 times sales — near its lowest valuation ever. Given its industry leadership, massive opportunity, and bargain-basement price, DocuSign is a stock investors should buy like there’s no tomorrow.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet and DocuSign. The Motley Fool has positions in and recommends Alphabet and DocuSign. The Motley Fool recommends Gartner and recommends the following options: long January 2024 $60 calls on DocuSign. The Motley Fool has a disclosure policy.