After delivering a stellar earnings report on June 2, 2021, DocuSign (NASDAQ:DOCU) stock was gapping up like a meme stock. DOCU stock jumped 20% in after-market and pre-market trading. However, in the next five trading days, the stock has only managed a 3% gain.
This seems fair, Investors may be out ahead of themselves a little bit. But with DocuSign there’s a reason for investors to be exuberant. Yet, DOCU stock is sitting on a gain of less than 10% in 2021. That means it’s underperforming the S&P 500 not to mention many of the meme stocks that are the darlings of retail day traders.
In the next few minutes let’s look at why that may be and why it’s likely to create a very profitable opportunity for investors.
Meme Stocks Are The Opposite of Analysis Paralysis
The meme stock mania that is overtaking the market will be studied for years to come. As a conservative investor, it can be easy for me to dismiss what’s happening as “irrational exuberance.” And that may turn out to be correct.
One concern that I would have is that many of these stocks are being bid up because they meet one or two extremely specific criteria. And while I agree that it can be helpful to focus your investment strategy to avoid analysis paralysis, the realistic prospects for the company’s business model must matter.
Relying on cost-cutting efforts and accounting maneuvers to boost earnings is not a sustainable path. Nor is cutting debt from the proceeds of issuing new shares. Investors should look for a company that is likely to generate revenue.
That’s one problem DocuSign does not have.
DocuSign Has An Emerging Story
DocuSign is an investment in the shift from traditional to digital solutions. In other words, it’s not just “skating to where the puck is moving,” it’s already there.
As 2021 began some analysts were concerned that the company’s revenue would lose steam as more in-person transactions began to remove the need for electronic signatures.
Instead, DocuSign posted sequential revenue for the thirteenth consecutive quarter. That means that the company’s revenue has gone up every single quarter since it went public in 2018. And that revenue is not just coming from the United States. DocuSign just recorded $100 million in international revenue for the first time. That was an 84% year-over-year gain.
As the company pointed out on its most recent earnings call, DocuSign has become an indispensable part of their customers’ business processes. And once a company invests in making this transformation to digital processes, they’re not going to abandon it. Especially when their customers prefer it.
To emphasize that point further, DocuSign recently signed its one-millionth customer.
This brings me to my second point. In addition to growing revenue, DocuSign has profitable earnings and is rapidly growing both its operating cash flow and free cash flow.
More to Come
MarketBeat’s Sean Sechler recently referred to an overlooked aspect of DocuSign’s business: cybersecurity. The company is not a pure-play on cybersecurity, but it does provide customers with a global enterprise information security program and a proprietary URL classification system that helps protect customers from threats and phishing attacks.
DocuSign Is a Tech Stock You Can Believe In
If you’re looking to trade DOCU stock, now is not the time. With the recent gap up, DOCU stock does not present an attractive setup at the time of this writing. But you should keep your finger hovering over the Buy button when the stock falls back.
On the other hand, if you’re committed to a long position, there’s no time like the present to get in on DOCU stock. Analysts are projecting the stock has a consensus price target of $270.86. While that does not show that impressive of a gain from its current level, many analysts have a much higher price target. That’s a bet I’m willing to make.