Despite a daily loss of 3.74% and a three-month loss of 14.14%, DocuSign Inc (DOCU, Financial) seems to be significantly undervalued. The company reported a Loss Per Share of $0.09, raising questions about its valuation. This article offers an in-depth analysis of DocuSign's intrinsic value and future prospects, aiming to answer whether the stock is indeed undervalued. We invite readers to delve into the following analysis to gain a better understanding of DocuSign's valuation.
A Snapshot of DocuSign Inc (DOCU, Financial)
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. The company, founded in 2003, went public in May 2018. Despite its current stock price of $48.33, the GF Value, an estimation of its fair value, is $131.18, suggesting that the stock may be significantly undervalued. The following analysis provides a deeper exploration of DocuSign's value.
Understanding GF Value
The GF Value is an exclusive measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. This calculation is 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.
The stock price typically fluctuates around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus Value calculation, DocuSign (DOCU, Financial) is believed to be significantly undervalued. At its current price of $48.33 per share and a market cap of $9.80 billion, DocuSign stock appears to be trading below its fair value. As a result of this undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Assessing DocuSign's Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Evaluating the cash-to-debt ratio and interest coverage can provide insights into a company's financial health. DocuSign has a cash-to-debt ratio of 1.64, ranking below 57.9% of 2734 companies in the Software industry. Its overall financial strength is 6 out of 10, indicating fair financial health.
Profitability and Growth of DocuSign
Consistent profitability over the long term reduces the risk for investors. Companies with higher profit margins are generally better investments than those with lower profit margins. DocuSign has been profitable 0 times over the past 10 years. Over the past twelve months, the company recorded a revenue of $2.70 billion and a Loss Per Share of $0.09. Its operating margin is 1.21%, ranking below 53.39% of 2714 companies in the Software industry. Overall, the profitability of DocuSign is ranked 3 out of 10, indicating poor profitability.
One of the most crucial factors in a company's valuation is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. DocuSign's average annual revenue growth is 31.5%, ranking better than 85.48% of 2396 companies in the Software industry. However, its 3-year average EBITDA growth is 0%, ranking below all 1997 companies in the Software industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess its profitability. 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 ROIC is higher than WACC, it implies the company is creating value for shareholders. For the past 12 months, DocuSign's ROIC was -3.27, and its WACC was 9.17.
Conclusion
In summary, DocuSign (DOCU, Financial) is believed to be significantly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than all 1997 companies in the Software industry. To learn more about DocuSign stock, you can check out its 30-Year Financials here.
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