Traditional agreement processes are often fragmented, disconnected and underleveraged, which usually leads to suboptimal agreement management. DocuSign, through IAM, resolves these issues. E-signing reduces or even eliminates the need for physical paperwork, which can be costly, hard to track and store, and less accessible. DocuSign’s platform enables users to upload and access documents in various formats and can be integrated with other platforms such as Microsoft 365 and Google Drive. It also automates repetitive tasks, reducing errors and saving valuable time in document processing.
Furthermore, DocuSign uses secure technology to authenticate documents, ensuring that all electronic signatures comply with applicable regulations in the relevant jurisdictions.
The company derives over 70% of its revenue from the US and the rest from international markets. Over 95% of its revenue is recurring, driven by subscriptions. DocuSign uses a prepaid subscription model, relying primarily on customisable digital envelopes with multiple tiers of add-on functionality, with the average dollar-weighted contract length at 19 months.
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For investors, DocuSign is a scalable company with significant growth potential given its addressable market. It is also not seasonal, as reflected in its consistently positive, growing cash flow. Also, the company adds value by simplifying business processes, a key driver of operational efficiency. Most importantly, it is AI-ready and a crucial business given the growing need and utilisation of AI in everyday life. In summary, DocuSign ticks all the boxes as a strong growth company to invest in.
So, why is this company featured? As a value investor, any fundamentally sound company that trades at a discount is worth examining. The company’s financial and quantitative fundamentals are great, but its share price has fallen almost 25% year to date. For comparison, the Nasdaq benchmark has also risen nearly 25%. The point is that the company’s value growth does not reflect in its share price, making it undervalued.
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The primary reasons the share price has declined include a conservative financial outlook and guidance, a slowing growth rate driven by intensifying competition, and analyst downgrades. The issue with competitors such as Adobe Sign and Dropbox Sign crowding the e-signature market is that it matters only if the total potential or addressable market is small. The total addressable market is estimated at over US$50 billion ($64.63 billion). DocuSign’s subscription-based model is also a solution to this, as it provides earnings visibility, at least over the short to medium term.
Key business highlights for the company include surpassing 25,000 customers for its AI-native IAM platform, with an average of over 5,000 contracts per customer. DocuSign’s IAM platform also includes new capabilities, such as AI ecosystem integrations with ChatGPT, expanded enterprise trust and security, and availability in two additional languages (Brazilian Portuguese and Spanish) and one additional region (Japan).
In 3QFY2026, revenue rose 8% y-o-y, while billings grew 10% over the same period. Specifically, DocuSign’s international revenue grew 14% in the comparable period, reflecting the potential for high growth in the geographic regions it can target in the future, which is part of its business strategy. The subscription gross margin was 83.4%, while operating cash flow and free cash flow margins were 35% and 32%, respectively.
A look at its financials shows DocuSign has performed tremendously well over the past few years since its listing in April 2018, as illustrated in Chart 1. The company’s profitability is also strong, as reflected by its positive returns on equity and returns on assets over the past eight quarters. Also, over the same period, DocusSign’s competitive advantage, reflected by its margins, has been positive and consistent, as shown in Chart 2.
DocuSign’s overall financial health is considerably good. Although the company’s short-term liquidity, as measured by its current ratio, is below the benchmark of one, DocuSign generates sufficient cash flow to make this not an issue. This is supported by the company’s interest coverage ratio, which averaged more than 100 times over the past four quarters, well above the benchmark of two times. Additionally, the company is net cash, indicating that financial distress is unlikely. Further, with an Altman Z-score of 4.74, which is above the benchmark of three times, and with its investment-grade-rated debt, this indicates that the company is financially healthy with a very low probability of default.
In terms of relative valuation, DocuSign trades attractively relative to global peers, trading with 36%, 24%, and 14% discounts to its forward P/E, forward EV/Ebitda and forward EV/Revenue ratios, respectively. Also, the company currently trades at 13%, 31%, and 37% discounts to its six-month, one-year, and two-year historical P/B averages. This implies that DocuSign is a cheap pick-up not only relative to industry peers but also based on its average trading range across multiple periods, supporting its undervaluation.
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Sentiment-wise, there are six “buy” calls, 15 “hold” calls and no “sell” calls for DocuSign from analysts over the next 12 months, with an average target price of over 25% above its current trading price of US$68.81. Based on a methodology that includes multiple valuation methods (see Charts 3a & 3b), the company’s intrinsic value is US$86.86, which is more than 25% above its current trading price.
Singapore investors who wish to purchase this stock may do so through their international trading account with minimal hassle, as it is a large-cap US stock listed on Nasdaq.
Disclaimer: This article is strictly for information purposes only and does not constitute a recommendation, solicitation or expression of views to influence readers to buy or sell stocks. Any personal investments should be made at the investor’s own discretion, after consulting licensed investment professionals, and at the investor’s own risk. The author of this article does not hold or own the stock featured in this article or have a vested interest in it at the time of writing.
