Can DocuSign’s stock double in value in the next 2 years?

DocuSign (DOCU 3.53%) is a stock that has taken a significant beating in recent years. The surge in demand it experienced in the early stages of the pandemic is long over, and investors have become much more bearish on its future growth prospects, questioning how attractive the company’s long-term opportunities will really be , especially with a lot of competition.

The company has evolved and worked to diversify its operations beyond just electronic signatures. It’s a bold but possibly necessary strategy to help turn the business around. Contrarian investors hope it will provide the catalyst DocuSign needs to generate much-needed growth and interest in its brand. Can this stock, which is nowhere near the $300+ highs since 2021, double in value over the next two years as it expands its operations?

The problem with DocuSign is an obvious one: its growth rate has slowed down a lot

DocuSign faces considerable challenges as there are many competing electronic signature services. While DocuSign has made a name for itself and generated $2.9 billion in revenue over the past 12 months, there’s no doubt that business has slowed significantly.

DOCU operating income data (quarterly annualized growth) by YCharts

A single-digit growth rate won’t get growth investors too excited about the stock, hence the need for a bolder strategy. DocuSign offers a wider range of services, providing a financial boost. It hopes that the complexity of contract review and management will attract customers to its intelligent agreement platform (IAM), which aims to streamline agreement processes. DocuSign is still in the early stages of rolling out IAM to customers, but management says it is “encouraged by early results and customer feedback.”

DocuSign’s valuation remains low despite a big rally

Although DocuSign has fallen from its peak a few years ago, its stock is up 50% over the past 12 months. A big part of the reason was that earlier this year, rumors of a potential acquisition led to excitement around DocuSign. But even with the increase in value, the stock still trades at a discount, with a price-to-earnings (P/E) multiple of about 14. By comparison, the average stock on S&P 500 trades at 24 times its trailing earnings.

There is some risk with DocuSign’s stock, which is why it’s at a deep discount, and where the stock goes will ultimately depend on the success of IAM. If the growth rate accelerates and returns to double digits, it would likely push the stock higher.

But for the stock to double in value and be a hot buy again, it would need to have a P/E multiple that is probably twice what it is now. And without solid data to prove that IAM is the real deal and that it’s winning customers and driving sales, it could be a tall order. In addition, many companies are already using artificial intelligence to automate processes, and whether there will be enough added value from IAM is the big question mark. While management may be upbeat and happy with customer feedback right now, investors will want to see this translate into tangible top-line growth.

Should you buy DocuSign stock today?

I’m not optimistic that DocuSign will be able to double its value in a few years or even five years. The business faces a lot of competition, and while AI can help it provide more services to customers, the same can be said for other comparable companies that offer enterprise solutions.

There is nothing to suggest that DocuSign has a game-changing platform that is better than what other competitors could offer, which will help it dominate the market. Between ChatGPT, MicrosoftCopilot, and many other companies that offer services that can help draft and analyze contracts, don’t see an easy path for DocuSign to dramatically accelerate its growth rate thanks to the launch of IAM.

Investors would be better off taking a wait-and-see approach with this stock, as there’s a real danger that DocuSign’s growth rate won’t improve…and may even get worse with the number larger pool of AI services for companies to choose from.