In what is shaping up to be 2021’s
first battle of the sell side, Minnesota based investment bank Piper Sandler is going toe to toe with New York’s JPMorgan over the fate of Docusign (
NASDAQ: DOCU). Considering their shares rallied nearly 300% in just nine months, it’s perhaps not too surprising that one of them would be out with a cautious note to end the year. But with us only a few days into 2021, the other has come out with an upgrade.
Halfway through last month, JPMorgan downgraded Docusign shares as part of a general cut to work-from-home stocks that had done tremendously well out of COVID-19 but whose best days might be behind them for the time being. The move came as momentum was picking up with the roll out of COVID vaccines, and hopes for a return to something like the old normal by the middle of 2021 were growing.
The End Of Work-From-Home Stocks?
In light of this kind of sentiment, the stocks that had performed the best because of COVID were always going to be vulnerable to portfolio reshuffling. Zoom Video (NASDAQ: ZM) are a great example of this; having come to represent for many the entire pandemic, both from a personal and professional point of view, their shares started falling in October and are currently down around 40% from those all time highs.
Docusign shares haven’t seen that kind of momentum swing just yet. While August did see them hitting all-time highs, that was very much a momentary spike in what was otherwise a fairly timid Q3 and Q4 for the San Francisco headquarter company. They did most of their rallying in the first half of the year and have spent the last six months consolidating their gains and have slowly but steadily started to march higher again.
Perhaps it’s this divergence from the likes of Zoom Video that has Piper Sandler excited about their prospects for 2021. On Tuesday of this week, they upgraded Docusign shares to Overweight, noting how the company’s pandemic-spurred upside is a "sustainable opportunity, in any environment." In a note to clients that was full of praise, they spoke to the company’s core e-signature product as being “at the heart of the digital transformation” that the COVID pandemic has accelerated.
Long Term Potential
Crucially for investors, both new and old, Piper Sandler believes “these strong trends will not reverse with any reopening, because DocuSign is at the forefront of a new normal regarding transactions." With a total addressable market of more than $50 billion and a somewhat limited field of competition, there’s plenty of reasons for Wall Street to be excited. Aside from these favorable fundamental factors, higher free cash flow margins also underpinned the upgrade.
As well as upgrading the stock, Pipe Sandler pushed their price target on shares up from $235 to $300, suggesting upside of more than 30% from current levels. Hitting this new target would also put shares above the top of August’s spike and confine that to history as an interesting spike on the chart rather than an all time high that has yet to be surpassed.
December’s Q3 earnings report had revenue up 50% on the year but GAAP EPS was slightly in the red. Considering they’re still waiting to turn a consistent profit, there’s an argument that shares are trading at some fairly frothy valuations. Indeed, this point made up much of JPMorgan’s decision to downgrade shares last month and it remains a risk. But this is a growth story to beat all growth stories and you’d be a contrarian to beat all contrarians to bet against Docusign’s continued march higher right now.
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