DocuSign Slumps Despite Impressive Earnings Beat

DocuSign, Inc. (DOCU) shares plunged 10.64% Friday despite the electronic-signature company sailing past earnings forecasts and lifting its second-half outlook on the back of companies requiring more digital signatures from a growing number of remote workers.

For the quarter ended July 2020, the firm reported adjusted earnings of 17 cents per share, crushing analysts’ estimate by a dime, and improving from 1 cent a share in the year-ago quarter. Revenues of $342.21 million also came in ahead of expectations and grew 45% year over year (YoY).

As of Sept. 8, 2020, DocuSign shares have a market capitalization of nearly $40 billion and trade 191.81% higher on the year. Gains have accelerated in recent months, with the stock adding more than 50%.

Looking Ahead

The company raised its guidance for the full fiscal year, saying it now expects sales of $1.384 billion to $1.388 billion, up from its previous forecast range of $1.313 billion to $1.317 billion. Meanwhile, it projects billings growth of around 40% in the second half, easing from a record 60% in the first half. “Customers have pulled projects forward. Whether that will continue will depend on whether everyone is still working from home. But we’re very bullish about the growth prospects for this business going forward,” CEO Dan Springer told Barron’s.

The company continues to move into other digital contract management areas, such as analytical tools that help businesses sort a repository of digitized documents. It’s also developing video-based notary solutions. The firm expects that 45 states could allow remote notaries as early as next year.

Wall Street View

Despite the stock’s sizable year-to-date (YTD) gain, analysts remain mostly bullish on the stock. It receives 9 ‘Buy’ ratings, 8 ‘Hold’ ratings, and just 1 ‘Sell’ rating. Twelve-month price targets range from as high as $300 to as low as $158, with the average price pegged at $250.26 – implying a 16% premium to Friday’s $216.26 close.

Technical Outlook and Trading Tactics

DocuSign’s share price staged a breakaway gap above crucial overhead resistance at $230 on Sept. 1 before promptly reversing below that level on heavy volume in subsequent trading sessions. The move indicates a possible head-fake trade that may give way to further profit-taking in the weeks ahead.

Those looking to buy the stock should look for entries near $136, where price finds support from a previous horizontal trendline and the rising 200-day simple moving average (SMA). Traders who expect a deeper retracement should monitor the $92.50 level, which is likely to encounter significant support from the February swing high.