Amidst a daily loss of -4.78 % and a 3-month loss of -9.33%, DocuSign Inc (DOCU, Financial) reported a Loss Per Share of $0.35. This article aims to answer the question: Is DocuSign (DOCU) significantly undervalued? We delve into a valuation analysis to uncover the true worth of DocuSign. Read on to discover our findings.
Company Introduction
Founded in 2003 and completing its IPO in May 2018, DocuSign offers the Agreement Cloud, a broad cloud-based software suite that enables users to automate the agreement process and provide legally binding e-signatures from nearly any device. With a current share price of $49.64, DocuSign (DOCU, Financial) holds a market cap of $10 billion. The GF Value, an estimation of fair value, stands at $200.71, indicating a significant undervaluation of the stock. Let's delve deeper into the company's value by examining its financials and operations.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our analysis reveals that DocuSign (DOCU, Financial) is significantly undervalued based on these factors. Consequently, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. DocuSign's cash-to-debt ratio of 1.46 ranks worse than 60.3% of 2738 companies in the Software industry. The overall financial strength of DocuSign is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. DocuSign has been profitable 0 times over the past 10 years. Over the past twelve months, the company had a revenue of $2.60 billion and Loss Per Share of $0.35. Its operating margin is -0.63%, which ranks worse than 56.53% of 2719 companies in the Software industry. Overall, the profitability of DocuSign is ranked 3 out of 10, indicating poor profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of DocuSign is 31.5%, which ranks better than 85.43% of 2396 companies in the Software industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1996 companies in the Software industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, DocuSign's ROIC is -0.67, and its WACC is 9.23.
Conclusion
In conclusion, the stock of DocuSign (DOCU, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 0% of 1996 companies in the Software industry. To learn more about DocuSign stock, you can check out its 30-Year Financials here.
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