DocuSign stock price forecast after the strong Q3 guidance

The DocuSign (NASDAQ: DOCU) stock price came under pressure in the extended session even after the company released strong numbers. The shares declined by more than 1.20% to $290, valuing the company at more than $57 billion.

DocuSign earnings

DocuSign is a technology company that offers digital signature services to companies around the world. As a result, it was one of the top performers during the Covid-19 pandemic. Indeed, its annual sales jumped from more than $974 million in 2019 to more than $1.454 billion in 2020.

DocuSign published its quarterly results on Thursday evening. Its revenue rose by 47% year-on-year to more than $594 million while its non-GAAP margin rose to 82%. This was a significantly higher number compared to the previous 78%. Its free cash flow rose to more than $161 million.

This growth was helped by the strong customer growth. DocuSign increased more than 13,000 customers in the second quarter, bringing the total number to more than 1 million for the first time.

The company also boosted its forward guidance. It now expects to make between $526 million and $532 million in the third quarter. This growth will be boosted by its subscription business, which is expected to generate between $505m and $511m. In a statement, the firm’s CEO said:

“We’re helping our customers and partners to shift their perspective from reactive to proactive, and enacting enterprise-wide programs to automate and digitize their end-to-end agreement processes.”

So, is the DocuSign stock price a buy? DocuSign is not a cheap company to invest in. Besides, this is firm valued at $57 billion that generates less than $1.5 billion. It is also a loss-making company.

Still, using historically, fast-growing SAAS companies tend to have a large premium. Also, the rule of 40 calculation results to 66. This is done by adding the operating margin of 19% and growth rate of 47%. This means that this growth could sustain a pricey share price.

DocuSign stock price analysis

The daily chart shows that the DOCU stock price has been in an impressive growth trajectory in the past few months.. In June, the stock managed to move above the key resistance level at $275, where it had struggled to move above before. The stock has moved sideways above this level and is stuck at the 25-day and 50-day moving averages. Its Relative Strength Index (RSI) has also done a bearish divergence pattern. Therefore, the stock will likely pull back in the near term and then accelerate the bullish trend.