During the pandemic, DocuSign (NASDAQ: DOCU) was one of the big winners. This is because consumers were forced to sign agreements online and DocuSign offered the ability to do this. Therefore, at the start of 2020, the DocuSign share price was $75, yet within two years, it had reached over $300. As the pandemic subsided, things have been far less pretty for this growth stock, however. It has crashed around 75% in the past year, making it one of the worst performers on the Nasdaq in this period. But this has left the DocuSign share price lower than its pre-pandemic price. So, is now the perfect time to buy or is there more room to fall?
Recent trading update
The Q1 trading update was very poor for DocuSign and as a result, its share price sank around 23% on the day. This was due to very weak forward guidance and a miss on earnings. In fact, for Q2, the company has forecast that it will make revenues of around $600m, a rise of 17% from last year. For the full-year, revenue growth is ‘only’ expected to be around 18%. Considering that revenue growth last year was 45%, this is very disappointing.
The firm also missed earnings expectations, reporting 38 cents per share on a non-GAAP basis, against Wall Street expectations of 46 cents per share. This illustrated that DocuSign isn’t immune to the macroeconomic challenges, and operating margins are a current struggle for the group.
But I was still encouraged to see growth, especially considering that the pandemic has now mainly subsided. Indeed, the group was still able to add 70,000 customers in the period, taking the total to 1.24m. International revenues (outside of the US) also climbed 43% year-on-year and highlighted growth opportunities ahead.
What am I doing with this Nasdaq stock?
After sinking 75%, DocuSign certainly looks a lot cheaper. In fact, based on forecast 2022 results, it now trades on a price-to-sales ratio of under five. During the pandemic, it traded at a price-to-sales ratio of over 30. It also trades at a price-to-earnings ratio of around 30, which is historically low. Therefore, any signs that operating margins are increasing could be met with major gains in the DocuSign share price.
Growth could also be propelled by its expanded partnership with Microsoft. This may attract more consumers to start using the company’s products.
But I’m still more tempted by other Nasdaq stocks, after the wider fall in the index. For instance, MercadoLibre trades at a lower price-to-sales ratio than DocuSign yet is still seeing revenue growth of over 60%. Its earning growth is also superior. Another example is Nvidia, which trades at a similar price-to-earnings ratio yet is growing at a faster rate. Nvidia has operating margins of over 40%, far higher than DocuSign. Therefore, although the DocuSign share price is historically cheap, I’m going to leave it on the sidelines for now. There are too many other great companies for me to choose from.
