1 Glorious Growth Stock Down 75% to Buy on the Dip in July

by

In 2018, Docusign (DOCU) made its initial public offering at a price of $29 per share. By mid-2021, its stock had skyrocketed more than ten times that original value, peaking at $310. The surge in demand for Docusign’s digital agreement platform was fueled by the COVID-19 pandemic, enabling businesses to continue conducting deals remotely during lockdown periods.

In 2022, social conditions largely returned to their usual state, causing a deceleration in DocuSign’s business and a significant drop in its stock price, which is now 75% lower than its maximum. Despite this, the company has been consistently expanding, and it has recently debuted a new AI-driven platform that could spark renewed interest from businesses of all sizes.

Here’s why now might be a great time to buy Docusign stock on the dip.

Solving a $2 trillion problem

DocuSign’s innovative AI-driven platform is named Intelligent Agreement Management (IAM), equipped with an expanding collection of tools that facilitate businesses in drafting, negotiating, and finalizing contracts. It doesn’t just end there; it simplifies contract management as well, making deadlines less likely to catch business owners off guard. According to Deloitte, a lack of effective contract management practices is costing businesses an astonishing $2 trillion annually.

DocuSign’s AI-driven platform, Intelligent Agreement Management (IAM), offers tools for drafting, negotiating, and closing contracts, while also streamlining the contract management process to make deadlines more predictable. Poor contract management practices are estimated to cost businesses around $2 trillion per year by Deloitte.

One of IAM’s leading tools is called the Navigator. This digital platform serves as a centralized storage solution for businesses to keep all their contracts. It employs AI technology to automatically sift through each document and identify crucial details. The platform then makes this information easily accessible via its advanced search feature, eliminating the need for employees to manually comb through individual contracts to find specifics. Furthermore, Navigator can detect renewal dates in every agreement, ensuring businesses are always aware of upcoming contract expiration dates.

In the process of creating fresh contracts, the AI-Assisted Review tool offered by IAM can spot potentially troublesome provisions and even suggest alternatives to replace them. Additionally, it functions as a chatbot capable of addressing queries, thereby aiding businesses in comprehending their potential risks. At present, the AI-Assisted Review doesn’t have the capability to fully replace a human legal team. However, its implementation could significantly lower a business’s legal expenses, particularly since users can establish pre-approved standards that help the tool recognize key aspects with each new contract.

In the first quarter of fiscal year 2026 (ending on April 30), DocuSign reported a 50% increase in international IAM sales compared to the fourth quarter of fiscal year 2025, which was just three months prior. Currently, IAM boasts more than 10,000 paying enterprise customers globally, yet there is significant potential for expansion since DocuSign has a total of 1.7 million paying clients worldwide, all of whom could potentially reap the benefits from their AI platform.

Loading widget...

Docusign is carefully managing costs to fuel profitability

In the first quarter of fiscal year 2026, DocuSign generated a revenue of $763.7 million, representing an 8% growth compared to the same period last year. Interestingly, this figure surpassed the management’s projected range of between $745 million and $749 million.

If Docusign had increased its spending on marketing like it did during the pandemic peak, it might have boosted its revenue growth even more. However, the company is being cautious with expenses to bolster its profits. In the first quarter, Docusign’s overall operating costs rose by a modest 1.6% compared to the previous year, while revenue surged ahead at a greater pace. This led to a significant increase of 166% in the company’s operating profit, reaching $60.2 million.

Under standard accounting practices (GAAP), the reported net income amounted to approximately $72.1 million, marking an increase of 113% compared to the previous period.

Looking back to the fiscal year 2021 (from October 1, 2020, to January 31, 2021), we find that DocuSign significantly boosted its annual operating costs by 37%. This expansion in costs led to a 49% rise in the company’s total revenue. However, this growth also resulted in a substantial net loss of $243 million according to GAAP (Generally Accepted Accounting Principles). It’s important to note that this follows a net loss of $208 million the previous year and an even larger net loss of $426 million the year before that.

Instead of persistently spending more than earning (losing money), which isn’t a viable long-term approach for growth, DocuSign wisely chose to focus on becoming profitable. Although this might result in lower revenue expansion rates initially, it guarantees the company’s longevity and protects investors from the potential downside of subsequent funding rounds (dilution).

Docusign stock looks relatively cheap right now

In simpler terms, when DocuSign’s stock reached its highest point in 2021, it was quite expensive. The price-to-sales (P/S) ratio climbed to approximately 40, a level that couldn’t be maintained without the fast revenue growth triggered by the pandemic. However, this growth didn’t persist as expected, causing the valuation to drop. As a result, the stock is now about 75% lower than its record high.

However, the adjustment appears to be excessive, as Docusign’s Price-to-Sales (P/S) ratio has dropped significantly to 5.4, representing a substantial reduction from its initial public offering (IPO) average of 12.4 in 2018.

If Docusign consistently earns GAAP profits, we might eventually be able to estimate its stock value using the conventional price-to-earnings (P/E) ratio. However, at present, its net income is somewhat irregular and hard to forecast – for example, in fiscal year 2025, the company received a one-time tax benefit of $819 million, which temporarily boosted its earnings. This unexpected gain might have skewed the true picture of its earnings.

Presently, considering Docusign’s P/S ratio, it appears to be an enticing investment opportunity, making it potentially beneficial for a diversified portfolio at this moment. Over the long haul, investors might reap substantial returns, especially if the company’s IAM platform keeps growing in popularity.

Read More

2025-07-22 12:09