Tech stocks took a beating at the past three trading sessions, as the Nasdaq pulled back nearly 10%.
In what was possibly the first instance of bad timing in a while for e-signature specialist DocuSign (DOCU), the release of its beat-and-raise fiscal Q2 report was discarded along with the rest of the market’s tech stocks. Shares plunged by almost 22% since Thursday.
Some on the Street believe it would be alarmist to attach too much significance to the drop. DocuSign has made the most out of the accelerating digital trends associated with COVID. Its core business has blossomed alongside the massive market gains. Even with the pullback, the trailing twelve months have delivered DOCU investors returns of 271%.
The problem, though, as has become apparent with many high-flying tech stocks, concerns an overheated valuation. DocuSign now trades at a revenue multiple 25 times that of FY22 revenue targets.
Nevertheless, the recent financial results are impressive. A year-over-year increase of 45.2% helped revenue beat the consensus estimate by $23.65 million, with it landing at $342.2 million. Additionally, non-GAAP EPS of $0.17 surpassed the Street’s forecast by $0.09. Billings of $405.6 million also came in ahead of the $340.1 million consensus estimate.
DocuSign provided strong guidance, too. The company expects fiscal Q3 total revenue to come in at between $358 million to $362 million. Even at the low end, this is significantly higher than the $335.1 million consensus estimate.
For Oppenheimer analyst Koji Ikeda, the results are enough to offset the valuation concerns.
The 5-star analyst said, “While we acknowledge near term sentiment headwinds from valuation and the intra quarter rally, we continue to be long-term bullish on the name. Moreover, the fiscal Q2 results lend support that our proprietary tracker is directionally correct, which increases our comfort in our long-term thesis. We would be buyers of DOCU shares on any broad market pullbacks.”
Accordingly, Ikeda keeps an Outperform (i.e. Buy) rating on the shares alongside a $300 price target. The implication for investors? Upside potential of 45%. (To watch Ikeda’s track record, click here)
The majority of Street analysts concur. Based on 9 Buys and 7 Holds, DocuSign has a Moderate Buy consensus rating. Over the next 12 months, the Street anticipates a 24% premium will be added to the stock, as indicated by the $255.40 average price target. (See DocuSign stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.