DocuSign stock crashes as Wall Street bank slashes target by 50%

DocuSign stock price dropped by nearly 6% on Friday after Citi analysts downgraded it and other popular software companies. DOCU has now plunged from the all-time high of $324 in 2021 to $42 today. So, is it a bargain or a value trap?

Citi downgrades DocuSign stock 

In a report to clients, Citigroup analysts downgraded DocuSign and other software companies like SimilarWeb, Autodesk, and Veeva Systems.

While Citi admitted that these at good companies, the analysts warned that there was no immediate catalyst in the foreseeable future. They added:

"This more selective approach would allow us to be more agile with our ratings should we see signs of AI acceleration play out."

In its report, Citi slashed the price target from $99 to $50. Other Wall Street analysts have slashed their DOCU stock target this year, with Bank of America slashing the rating from neutral to underperform and the price target to $52.

Top Wall Street analysts, including from companies like JPMorgan, Piper Sandler, Morgan Stanley, Royal Bank of Canada, and UBS have all slashed their target this year. As a result, the average estimate among analysts is $61, down from $93 a year earlier.

DocuSign has become a bargain 

The ongoing DocuSign stock crash has made it a bargain, with the forward price-to-earnings ratio falling to just 9.72, which is lower than the sector median of 21 and the five-year average of 43. Its forward PEG ratio has dropped to 0.39, also lower than the sector median of 1.34.

The ongoing DOCU stock price crash and falling valuation is because the company has faced major challenges after the pandemic. Its revenue growth has stalled despite the Intelligent Agreement Management (AIM) launch.

The most recent results showed that the company's revenue rose by 8% YoY to $837 million as its billings rose by 10%. 

Yahoo Finance shows that the company’s growth will remain on edge in the near term, with the era of double-digit growth has ended and the company lacks clear catalysts to resume this trajectory.

The average estimate is that its revenue will rise by 8.40% this year to $3.4 billion, followed by 7.4% next year to $3.75 billion.

To boost the stock, the company has continued to repurchase its shares, a move that will continue boosting its earnings-per-share (EPS). Its outstanding shares have dropped from over 205.3 million in 2024 to the current 197 million.

A potential catalyst for the DocuSign stock would be an acquisition because it is trading at a bargain. The challenge, however, is that demand for software companies has waned in the past few months amid fears of AI disruption.

DOCU stock price technical analysis

DocuSign stock chart | Source: TradingView 

The weekly chart shows that the DocuSign share price has plunged in the past few years and is now hovering near its all-time low of $38.3. It has dropped below all moving averages, a sign that bears remain in control for now.

The stock is nearing the all-time low of $38.3. It has also formed an inverted cup-and-handle pattern, a common continuation sign in technical analysis.

Therefore, the stock will likely continue falling as sellers target the next psychological level at $35, a move that will be confirmed if it drops below the key target at $40.