This Stock is a Solid Long-Term Bet

At the beginning of the week, DocuSign (NASDAQ:DOCU) stock saw its share price decline. Investors looked at economic reopening across the U.S. as a negative for the firm’s future performance.

DocuSign specializes in orchestrating contracts online and is best-known for its eSignature service, which allows people to sign contracts electronically.

When the novel coronavirus struck and forced people to work from home and limit social contact, DocuSign stock was one of the first companies investors turned to.

With businesses around the country shifting their entire operation online, the ability to close contracts without face-to-face travel was essential.

But now that it seems things could get back to normal, investors are tentative. While some might be taking profits on DOCU stock now, patience could pay off big time for long-term investors, as DocuSign looks likely to continue flourishing even beyond the pandemic.

DOCU Stock Isn’t Just a Coronavirus Play

There’s no denying that coronavirus is a big part of the reason DocuSign was able to impress investors in the first quarter. But as is the case with things like virtual healthcare and e-commerce, the pandemic likely just accelerated a switch to virtual services that were coming anyway.

Now that many companies have invested in the technology and training that’s required to allow employees to work from home, they’re likely to continue with at least some remote work when the pandemic gets relatively under control. That’s especially true when it comes to virtual meetings rather than international business trips.

Although travel restrictions are starting to ease, many companies will be hesitant to spend on trips if they’re not necessary. Coronavirus has caused financial pain to businesses in just about every sector, so budget cuts are necessary for most firms to get back on track. DocuSign offers an alternative to expensive trips that makes it easier for companies to make remote deals.

Building out an Ecosystem

An investment in DOCU stock is more than just an investment in eSignature technology. While that’s certainly the firm’s most well-known product, DocuSign has been working to build out its service into a comprehensive contract management tool. The firm has been expanding its offerings to include a wide range of services.

Part of that plan has been making strategic acquisitions. DocuSign has acquired SpringCM, an end-to-end contract management firm, and Seal Software, which specializes in data analytics specifically for contracts.

That means that DocuSign customers have the ability to use Seal’s analytics to find potential contract pitfalls before they sign DocuSign’s eSignature suite to complete the contract, and SpringCM’s contract management tools to keep the agreement up to date.

By incorporating those extra add-ons, DocuSign will likely retain more customers beyond the pandemic as businesses use the company for more than just remote signatures.

The Price of Quality

Notably, DOCU stock has gotten expensive over the past six months. That in itself offers a layer of added risk because it means investors are expecting a lot from the firm going forward. But DocuSign looks like it can deliver.

Almost all of DocuSign’s revenue comes from subscriptions, meaning the firm’s ability to renew those subscriptions is paramount. Of course, some percentage of those who signed up this year did so because of the pandemic, but as people continue to work from home and refrain from unnecessary travel there will be a reason to renew.

What’s more, DocuSign is a market leader in remote contracts, meaning they should be able to capture much of the future growth. Over the next three years, the market for digital signatures is seen growing to $5.5 billion, and DOCU should be able to capture most of that growth.

The Bottom Line

The current market is rife with volatility, so pouring your life savings into an expensive tech stock like DocuSign isn’t the right move. But starting to build a position, even as its share price remains near 52-week highs, is worthwhile considering the company’s long-term potential.

Not only will DOCU stock thrive if a second coronavirus wave surfaces, but the firm should be able to springboard off of its pandemic momentum well into the future.

— Matthew McCall

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Source: Investor Place