Investor sentiment has been battered by macroeconomic headwinds over the past year. While each of the major stock indexes suffered from the decline, Nasdaq Composite itself remains mired in bear market territory, down 31% from its peak in late 2021. Many individual stocks have fallen further.
Still, even as economic clouds linger, there is 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 deal staring investors squarely in the face is the electronic signature specialist DocuSign (WHILE 2.97%). In just over three years, the stock jumped more than 700% before bottoming out. Since then, Docusign has been buffeted by tough racing and prevailing headwinds. However, focusing too closely on current circumstances can obscure the big picture. Those who pull back will see that they need to buy these stocks like there’s no tomorrow.
Sign on the (electronic) dotted line
Even before its mind-boggling growth fueled by remote work, DocuSign was already a rising star. Not every situation lends itself to a personal signature, which previously required sending documents overnight to be ratified — and returned. Electronic signature – or e-signature – is a much more convenient and cost-effective way of doing business, and DocuSign is the undisputed leader. Although estimates vary, the company controls a commanding 75% share of the market, according to data compiled by Deloitte.
Investors may be tempted to conclude that demand for digital signatures — and by extension DocuSign — peaked during the pandemic, but the evidence suggests otherwise. The digital signature market was valued at USD 4 billion in 2022 and is expected to grow to over USD 35 billion by 2029, representing a compound annual growth rate (CAGR) of 36%. As a recognized brand and industry leader, DocuSign is well positioned to capture a significant portion of this growth.
That’s Not All The electronic signature market is still in its infancy and continues to expand beyond its original use cases. For example, the need for verified digital identities has never been greater, a service that goes hand in hand with electronic signature.
Businesses and regulators increasingly require a “trusted identity” to accompany a digital signature, especially on official or legal documents. DocuSign’s identity services provide electronic signature verification, identity verification and authentication, helping to expand the market beyond just digital signatures.
We have an agreement
Perhaps the biggest opportunity, however, is DocuSign’s foray into contract lifecycle management (CLM). In early 2019, the company introduced DocuSign Agreement Cloud to help organizations make the entire agreement process more efficient. This includes applications that address a wide range of contract management challenges, including preparing, signing, operating and managing agreements. Examples of this process include offer letters from human resources departments to job applicants or sales contracts between a buyer and a seller.
DocuSign has expanded its capabilities to include artificial intelligence (AI) and contract analytics. Within Cloud Cloud, users can quickly search through a large collection of contracts, focusing not only on keywords but also on legal concepts. In addition, the system and its advanced algorithms can extract, analyze and compare contract terms, saving the user time and money. Its advanced capabilities go even further by identifying areas of risk or potential business opportunities.
As a result, DocuSign has quickly become a force in the business, but don’t just take my word for it. DocuSign was announced as a boast Gartner 2022 Magic Quadrant as a leader in CLM for the third year in a row. The company was rated highest among the 18 solutions evaluated for its ability to execute. It was also rated highly in terms of completeness of vision.
Management estimates the CLM market opportunity at $25 billion, bringing DocuSign’s total addressable market (TAM) to over $50 billion. For fiscal 2023 (which ends Jan. 31), DocuSign’s revenue is expected to be around $2.5 billion, which helps highlight the scale of the remaining opportunity.
The prevailing headwind will not continue
To be clear, DocuSign has faced a number of challenges over the past year. The company experienced a strong growth spurt fueled by pandemic-related lockdowns and remote work, which has since waned.
Additionally, macroeconomic headwinds haven’t done DocuSign any favors with the business curbing discretionary spending. In the third quarter of fiscal 2023 (ended Oct. 31), revenue of $646 million grew 18% year-over-year, leading to adjusted earnings per share of $0.57, up from $0.58 in the year-ago quarter. Additionally, former DocuSign CEO Dan Springer abruptly left last June, replaced by Alphabetformer Google president Alan Thigesen, 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 — close to its all-time low sometime. Given its industry leadership, tremendous opportunity, and bargain price, DocuSign is a stock investors should be buying like there’s no tomorrow.
Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet and DocuSign. The Motley Fool has positions and recommends Alphabet and DocuSign. The Motley Fool recommends Gartner and recommends the following options: long January 2024 $60 DocuSign calls. The Motley Fool has a disclosure policy.