Docusign (DOCU) Potential Upside If Growth Managed To Recover

Wall Street expects San Francisco, California-based DocuSign to post EPS of $0.65 during the quarter, while revenue estimate is expected to rise 6% to $699.38 million. Docusign has topped estimates for both third-quarter revenue and profit in its last reported earnings.

Over the last 2 years, Docusign has beaten EPS estimates 88% of the time and has beaten revenue estimates 100% of the time. Docusign has seen increased competition and web traffic declines as it prepares to release fourth-quarter results.

Docusign has been attempting to turn the company around but its growth seem to fail to recover. Last month, Docusign has mentioned that they plan to cut its headcount by roughly 6%, or 400 employees as part of restructuring as private equity firms have reduced their interest on Docusign.

But in the last quarter we are seeing hedge funds increased their holdings by 4.8M shares in the last quarter.

DOCU last reported earnings on 07 Dec 2023 after the market close (AMC). DOCU shares gained +4.8% the day following the earnings announcement to close at 49.73. Following its earnings release, 90 days ago, DOCU stock has drifted +5.5% higher.

From the time it announced earnings, DOCU traded in a range between 49.12 and 64.76. The last price (52.47) is closer to the lower end of range.

Estimated implied straddle for upcoming earnings is 10.6%. We might see an upside price effect given that Docusign is in the process of more headcount cut to reduce its cost.

The options market overestimated DOCU stocks earnings move 58% of the time in the last 12 quarters. The predicted move after earnings announcement was ±11.6% on average vs an average of the actual earnings moves of 14.6% (in absolute terms). This shows you that DOCU tended to be more volatile than the options market predicted for the earnings stock price reaction.

Option valuation show that Docusign is undervalued, this suggest that we might see an upside of Docusign stock price after its earnings.

Investors are still positive on Docusign as even though competition might have increased, they are expecting the business to stay the course heading into the earnings. Docusign has a history of exceeding Wall St's expectations, beating revenue estimates every single time over the past two years on average by 2.5%.

But we need to be aware of the fast changing trend of AI, and I hope to see more plans from Docusign on how they would plan to increase their sales through better offering.

Appreciate if you could share your thoughts in the comment section whether you think Docusign would beat estimates and provide an upside on its stock price?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.