Is It Time To Reassess DocuSign (DOCU) After A Sharp Multi‑Year Share Price Slump?

• If you are wondering whether DocuSign is starting to look like value or still a potential value trap, its recent share price and fundamentals raise some important questions worth unpacking.
• The stock last closed at US$45.54, with returns of a 15.3% decline over 7 days, a 30.1% decline over 30 days, a 29.8% decline year to date, a 51.5% decline over 1 year and an 82.2% decline over 5 years. This sets a very different backdrop to where the share price has been in the past.
• Recent commentary around DocuSign has focused on how the business fits into a more mature e-signature and agreement management market, along with what that could mean for its long term role in customers' software stacks. This context, together with questions around growth durability and competition, helps frame how investors are now thinking about the risk and reward trade off.
• Against that backdrop, DocuSign currently scores a 4 out of 6 valuation score. This suggests some aspects of the shares may screen as potentially undervalued while others do not. Next we will look at the different valuation approaches behind that score, and then finish with a broader way to think about what the valuation might really be telling you.

Find out why DocuSign's -51.5% return over the last year is lagging behind its peers.

Approach 1: DocuSign Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and discounting them back to today’s dollars, so you can compare that estimate to the current share price.

For DocuSign, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections expressed in US$. The latest twelve month free cash flow is about $990.3 million. Analyst based projections feed into the next few years, with Simply Wall St extrapolating further out. For example, projected free cash flow for 2031 is $1,258 million, with intermediate years such as 2026 to 2035 ranging from about $994 million to $1,423 million before discounting.

Bringing all those projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of around $105.03 per share. Against the recent share price of $45.54, this implies an intrinsic discount of roughly 56.6%, which indicates that, on this cash flow based view, the shares appear undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests DocuSign is undervalued by 56.6%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for DocuSign.

Approach 2: DocuSign Price vs Earnings

For profitable companies, the P/E ratio is a useful way to gauge how much you are paying for each dollar of earnings, which makes it a common shortcut for comparing valuation across similar businesses.

What counts as a “normal” P/E depends a lot on how quickly earnings are expected to grow and how risky those earnings look. Higher growth and perceived resilience can justify a higher P/E, while slower growth or higher risk usually argue for a lower one.

DocuSign currently trades on a P/E of 30.17x. That sits above the broader Software industry average of 25.66x, but below the peer group average of 59.63x. Simply Wall St also estimates a “Fair Ratio” of 30.90x. This is the P/E level it might expect for DocuSign given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio can be more useful than a simple peer or industry comparison because it adjusts for DocuSign’s own profile rather than assuming it should trade like the average software stock. With the current P/E of 30.17x sitting very close to the Fair Ratio of 30.90x, the shares look roughly in line with that model.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 22 top founder-led companies.

Upgrade Your Decision Making: Choose your DocuSign Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to your own numbers for fair value, future revenue, earnings and margins.

On Simply Wall St, Narratives live in the Community page and give you an accessible way to connect a company’s story to a financial forecast and then to a fair value. You can then compare that with the current share price to help decide whether it looks like a potential buy, hold or sell for you.

Because Narratives update when new information such as earnings releases or news is added, your fair value estimate is automatically refreshed. This means you are not stuck with an old view that no longer matches what is happening.

For DocuSign, one investor might build a Narrative that assumes very cautious revenue growth and lower profit margins that result in a fair value well below today’s US$45.54 share price. Another investor might assume stronger adoption and steadier margins that support a fair value closer to the DCF estimate of about US$105.03.

Do you think there's more to the story for DocuSign? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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