DOCU - DocuSign: Why I See No Reason To Be Bullish Now

2024-06-10 07:11:26 ET

Summary

• DocuSign's 1Q FY2025 earnings results were slightly better than expected, but the top-line growth rate reached a historical low, showing no sign of rebounding.`.
• The company's revenue growth has been softening, with a projected deceleration to mid-single digits and flat margins.
• The billings growth has also slowed to single digits, and management lowered its billings guidance for FY2025, suggesting a potential headwind for cash inflow.
• Stock-based compensation grew 15% YoY in FY2024, which significantly improved non-GAAP year-over-year results and non-GAAP valuation multiples.
• Despite a cheaper valuation than a year ago, without a growth rebound, the stock is likely to remain in a value trap.

Investment Thesis

DocuSign ( DOCU )'s stock dipped by more than 3% despite a better-than-expected 1Q FY2025 earnings report. A slightly negative reaction without triggering a significant selloff might indicate a muted result that disappoints investors. In my previous coverage , I issued a hold rating and discussed a potential value trap for the stock due to a growth slowdown to low teen digits. After a year, the stock has been trading on the sidelines and is currently down 8% since my last article, compared to a more than 20% gain in the S&P 500 index....

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