Why DocuSign Stock Is Down By 40% Today
DocuSign Stock Plunges As Company’s Growth Slows Down
Shares of DocuSign found themselves under huge pressure after the company released its quarterly report. DocuSign reported revenue of $545 million and adjusted earnings of $0.58 per share, beating analyst estimates on both earnings and revenue.
However, its fourth-quarter revenue forecast disappointed. The company expects to report revenue of $557 million – $563 million, which means that growth is slowing down.
The company’s CEO Dan Springer stated: “After six quarters of accelerated growth, we saw customers return to more normalized buying patterns, resulting in 28% year-over-year billings growth”.
These are not the words that investors would like to hear from a high-growth company. Not surprisingly, analysts rushed to cut their price targets for DocuSign stock, putting additional pressure on the company’s shares.
What’s Next For DocuSign Stock?
Currently, analysts expect that DocuSign will report earnings of $1.7 per share this year and $2.19 per share in the next year, so the stock is trading at 64 forward P/E despite the massive sell-off.
The company’s rich valuation is the main reason for the current weakness of its stock. At such valuation levels, traders expect fast growth. When growth begins to slow down, the stock is punished. Similar pandemic-era examples include Zoom, which is down by about 70% from highs that were reached back in October 2020, and Peloton, which is down by more than 70% year-to-date.
Investors and traders have already seen what happens to high-flying stocks when companies’ growth slows down, so they rush to exits at first signs of weaker growth. In DocuSign’s case, potential for multiple compression remains significant even after the strong sell-off.
In this light, it remains to be seen whether speculative traders will rush to buy DocuSign shares. Examples like Zoom and Peloton show that it is difficult to find a bottom in such situations, so traders may stay away from DocuSign stock in the upcoming trading sessions.
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