Docusign Shares Jump on Strong Outlook: Is It Too Late to Buy the Stock?

Key Points

• Docusign's revenue and billings growth were solid in its fiscal 2026 Q2.

• The company's new Intelligent Agreement Management platform is experiencing strong momentum.

• The stock looks attractively priced at current levels.

• 10 stocks we like better than Docusign ›

Docusign (NASDAQ: DOCU) share prices jumped last week after the provider of electronic signature solutions reported solid revenue and billing growth for its fiscal 2026 second quarter. Despite the jump in its price following the Sept. 4 report, the stock is still down nearly 10% on the year, as of this writing.

Let's take a closer look at the company's report and prospects, and consider whether its recent momentum can continue.

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AI tools gain traction

Docusign was a big winner during the pandemic, when its services were in high demand, but it lost traction after social-distancing efforts waned. The pandemic had pulled a lot of its long-term growth forward. Then rising interest rates put a damper on the real estate market -- an important end market for the company.

Image source: Getty Images.

To try and reinvigorate its business, the company has been transitioning from simply being an e-signature services provider to selling a more comprehensive offering -- its Intelligent Agreement Management (IAM) platform. During the quarter, the company said more than half its account reps closed at least one IAM deal, and it expects to end its fiscal year with IAM customers representing a low double-digit percentage of its subscriptions. It's also continuing to innovate in this area, with new artificial intelligence (AI) capabilities, including custom extractions and agreement preparation.

In the meantime, Docusign continues to chug along. In the fiscal second quarter, revenue rose 9% from a year ago to $800.6 million, while subscription revenue climbed by 9% to $784.4 million. Professional service revenue jumped by 13% to $16.2 million.

Adjusted earnings per share (EPS) fell by 5% to $0.92 from $0.97 a year ago, as the company saw some gross margin compression due to its ongoing cloud data center migration. The results topped analysts' expectations for adjusted EPS of $0.85 on revenue of $779.78 million.

International markets once again led the way with revenue growth of 13%. The Asia Pacific region was its fastest-growing, and international revenue accounted for 29% of Docusign's total.

Billings climbed 13% to $818 million for the quarter -- well above its prior guidance range of $757 million to $767 million. Billings, which are the total value of customer contracts signed, are a leading indicator of future revenue growth.

The company's total number of customers increased by 9% year over year to more than 1.7 million. The number of large customers spending over $300,000 annually with Docusign climbed by 7% to 1,137. Dollar revenue retention in the quarter was 102%, up from 101% last quarter and 99% a year ago. This showed that existing customers after churn were spending slightly more with the company than they did a year prior.

Docusign continued to produce strong cash flow, generating $246.1 million of operating cash flow and $217.6 million of free cash flow in the quarter. After repurchasing $201.5 million worth of shares, it ended the period with cash and investments of $1.1 billion on its books and no debt.

Looking ahead, the company again increased its full-year guidance for revenue, subscription revenue, and billings.

Data source: Docusign earnings releases.

For its fiscal Q3, management projected revenue of $804 million to $808 million and subscription revenue of $786 million to $790 million, each amounting to growth of 7%. Billings are forecast to be between $785 million and $895 million, which would be growth of about 5% at the midpoint of the guidance range.

Can the stock's momentum continue

Docusign has settled into a company that's growing revenue by high single-digit to low double-digit percentages and that generates strong cash flows. Its bookings growth in the last quarter was promising, and IAM and its AI tools are showing early signs of success.

After its recent price gains, Docusign stock trades at a forward price-to-earnings (P/E) ratio of just over 20 times next fiscal year's analyst estimates, and a price-to-sales (P/S) ratio of under 5. Meanwhile, nearly 7% of its market cap is in cash.

Overall, I think that for the type of growth Docusign is producing, the stock is a bit undervalued. However, the company will need to accelerate growth a bit more to get investors excited and really get the stock going again.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign. The Motley Fool has a disclosure policy.