DOCU: The Industry Leading E-Signature Company Against Rising Competitors

DOCU’s Highlights

DocuSign (NASDAQ: DOCU) is a digital agreements company that specializes in e-signature technology. This technology was created to create an effortless system for sorting and digitally signing documents which otherwise be slow and expensive on a physical piece of paper.

DocuSign also brings AI-driven contract analyzing software to negotiate and understand the agreement at hand so the customer can easily equip themselves with the requirements submitted within the contract. This was traditionally done by humans but is now replaced with AI.

Allowing businesses to continue operations at a steady pace is a key part of DocuSign’s business model. Today, more than 1,000,000 customers and hundreds of millions more users worldwide use DocuSign’s technology framework.

So what’s next for DocuSign?

The Future of DocuSign

Digital processes for traditional techniques are appearing everywhere from digital payments, e-commerce, e-books, and more. DocuSign’s digital signature software is yet another application to match the ecosystem.

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There is an abundance of use-cases for this technology such as opening bank accounts, consent forms, Know Your Customer (KYC) identity checks, tax forms, just to name a few.

In almost every place where ID will need to be verified, DocuSign’s e-signature framework can easily integrate. This is essentially allowing efficient communication between parties which results in quicker approval times, speeding up a traditionally slow process.

Moving forward, these digital applications should continue to propel millions of contracts forward in a short period, which will save countless hours from the workflow.

However, there are some potential risks to be aware of.

Potential Risks and Obstacles

While DocuSign’s business is solving digital signature problems, so are many other businesses.

There is nothing fundamentally different that will be difficult to replicate, which is a risk, even despite DocuSign offering other additional services. This can be somewhat worrying to shareholders who don’t have the stomach to watch competitors try and take a piece of the market.

Currently, DocuSign has current liabilities of $1.10 billion that are due within a year, with $956 million due over the long term. Luckily, DocuSign does have cash of $780.6 million and receivables of $265.6 million which are due in the next 12 months.

This indicates that DocuSign has fairly similar liabilities and liquid assets which would mean there is no current cause for concern. Although, if debt outpaces liquid assets, it may begin to worry investors as another possible risk.

What should keep DocuSign ahead is the long list of pre-existing clients and customers. If this following is maintained, there should be very few risks along the way. If they are disrupted by a better product, then it’s worrying, to say the least.

Analyzing DocuSign’s Price Action

DOCU stock for quite some time traded flat after the massive runup in 2020 when everything digital became suddenly super appealing as it was completely contactless. DocuSign’s business model was the perfect fit for millions of businesses when physical signatures weren’t in the realm of possibility.

However, DOCU stock has been performing phenomenally well year-to-date. At the time of writing, DOCU has gained just under 30%. This might be attributed to the upcoming earnings as well as consistent Wall Street support for the share price.

While predicting the share price over the short-term is the equivalent of picking the winning ticket from the lottery, we can feasibly see a positive long-term future for DOCU stock if the risks at hand are taken care of.

Closing thoughts

Overall, DocuSign has created an incredible product that can easily adapt and integrate into various business models worldwide. The client and customers list are what keeps risks low as the competition heats up in the e-signature space.

It’s best to keep a close eye on DocuSign in the coming months as earnings and guidance will play a role in their overall long-term trajectory.

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Author’s Trade Insights

This is not intended to be investment advice. As always do your own due diligence and invest based upon your own risk appetite and consult your own financial advisor for the right investment strategy for your specific needs.

This stock, since inception has gained almost 700%. Just this year alone it has risen 34% year to date as of this writing. I see a lot of competition ahead for this company’s business model. Growth will largely depend on DOCU’s ability to maintain an advantage over digital signing solutions that its competitors may not have tapped into yet.

looking at the yearly chart of this stock, you can clearly see it has had an established resistance level (which will now become support) around $265 and there may lie some opportunities to enter a position. Since the stock is a bit pricey and I am neutral to bearish, to gain exposure I can use the bull put credit spread. A bull put spread is usually considered a bullish strategy because you want price to go up so that both options expire worthless and you keep the premium collected from entering the trade, which becomes your max profit.

Now you might ask “if your bearish, then why are you using a bullish strategy”? That is the beauty of option strategies, they have many uses and allow you to be flexible and creative in your trade execution.

In this scenario we are going to apply a bullish strategy to a potential bearish outcome. Let me explain quickly: If the stock falls I expect support to kick in around the $265 range. If my strategy requires price to be above $265 by expiration if price falls I can still come out profitable, or if price rises I will come out profitable and if price goes absolutely no where I can still come out profitable.

Looking at the October 15th expiration cycle I can execute a put credit spread by buying the $250 put strike for $570 and then simultaneously selling the $260 put strike (with the same expiration date) and collecting $800 in premium. I will receive a net credit of $230 to enter this trade. This trade will require me to put up $1000 in collateral which is the difference in the strike prices ($100 x 100 shares). This also represents my maximum loss if I am completely wrong and price closes below the $250 strike by expiration. (Technically since I received $230 from placing this trade my capital at risk is only $770).

If Price is above $260 by the end of the expiration cycle then my return from this trade would be a 29.87% return on the capital at risk ($230 divided by $770). Not a bad return for only a two month holding period.

 

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Andre Mitchell
Andre Has been trading financial markets for 5+ years. Has consistently grown small account sizes to medium sizes. Andre is a long term income investor that primarily operates in the stock options market and loves sharing his insight and experience with people who love investing and growing their financial wealth.
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