Is DocuSign A Buy During The Current Price Consolidation?

Shares of electronic document specialist DocuSign NASDAQ: DOCU is consolidating in a third-stage base below an August 10 high of $314.76.

The stock attempted a rally in early September but hit resistance at $314.70. 

It then pulled back to a structure low of $241.95 on October 4, finding support near its 200-day line before beginning to etch the right side of the current base. 

DocuSign went public in April 2018, putting it squarely in the zone where newly public stocks can notch big price gains that easily trounce the broader market. Newer companies tend to have an in-demand service and management who can be nimble enough to quickly address new opportunities and challenges.

While electronic signatures were already gaining steam, the pandemic really brought home DocuSign's utility. Unlike many companies that saw earnings and revenue decline in 2020, DocuSign grew earnings at triple-digit rates in seven of the past eight quarters. Earnings grew at a not-at-all-shabby rate of 71% in the remaining quarter.

Revenue grew between 38% and 58% in the past eight quarters. Clearly, DocuSign's technology is being adopted quickly. This fits the profile of a growth stock with a hot product, that's poised for more growth.

The company is due to report its fiscal third quarter for 2022 on or around December 2. For the full year, analysts expect the company to earn $1.75 per share, which would be a 94% year-over-year increase.

For fiscal 2023 that's seen rising another 31% to $2.29 per share.

According to MarketBeat earnings data, DocuSign beat earnings and revenue views in each of the past 10 quarters.

The stock advanced 37.60% in the past year and 25.19% year-to-date. With the current correction, the stock is down 6.63% in the past three months.

MarketBeat compiled data showing that analysts have a "buy" rating on DocuSign, with a price target of $314.78, representing a 13.11% upside.

After the company's second-quarter report on September 2, nine analysts boosted their price targets on DocuSign. Three more reiterated their "buy" ratings.

Partnership With Salesforce

One key characteristic of a growth company is continued innovation. Along those lines, DocuSign last week announced a partnership with Salesforce NYSE: CRM.

The two companies said they would build new joint solutions that make it easier for customers to accelerate how agreements are facilitated around the world.

According to the press release, "New innovations will automate the contract process with AI-based, smart solutions that improve the customer experience of preparing, signing, and managing agreements, drive faster ROI, and increase collaboration amongst organizations with Slack functionality."

Salesforce acquired Slack, a business communication platform, in July 2021.

In addition to facilitating collaborations, the new partnership aims to ease the billing process, as well as the document-generation process for sales teams.

That's not the only innovation rolled out recently. On October 14, the company announced DocuSign Ventures, which focuses on co-investing in and partnering with companies raising early-stage funding to innovate around the agreement process.

According to the announcement, DocuSign Ventures is interested in a range of innovative technologies to transform how agreements are created, executed, and managed. Those include:

• Agreement process automation and workflows
• AI and smart contract technology
• Identity verification and management
• Digital payment platforms
• Legal and compliance automation technologies
• Vertical solutions in areas such as mortgage and lending

There's obviously plenty of potential ahead, but does that mean DocuSign is a buy right now?

The current consolidation is still forming so it's too early to rely upon the uptrend to continue. It's possible would-be investors will have to wait until after the third-quarter report to see whether institutions decide the stock is worthy of sending higher, or whether they hear something in the report that sends them into selling mode.

There's one caveat to that: If you're the type of investor or swing trader who is OK with taking a risk, a trend line beginning with the prior structure low of $179.49 could yield an early buy point around $300. If you opt to make a purchase there, be aware that you may risk getting shaken out earlier if the consolidation continues.