It seems to me that today offers us a chance, one that I took advantage of, to enter or add onto an existing docusign position. This stock has been lumped into the work from home stocks and has seen a $30/share drop today. I don’t see this stock being affected much by a reduction in work from home. Docusign was growing quickly and gaining traction, even before the pandemic.
Revenue grew 35%, 2018 to 2019, 39%, 2019 to 2020 and is expected to grow to 42% this year. The company’s revenue was growing before the pandemic and is accelerating its growth. Meanwhile the stock price, at today’s discount, has nearly doubled from year ago.
I added today and will add more if the price drops more. Thank you Mr. Market.
The most recent quarterly revenue growth of 45% was quite impressive. Last quarter before covid-19 of Jan-2020 was around 38% YoY growth, which was also quite impressive. Around then, the P/S was only 14 and now it is around 35. (Same question can be extrapolated to ZM,DDOG, CRWD, TTD, SHOP, TWLO, and so on)
What else (other than covid19) happened that boosted the confidence of “investors” in these stocks to bid the P/S up from 15ish to 35 in this case and in some cases to as high as 100? How high is too high? Was it too low back then or too high now?
Without any doubt, this board is genius and exploited one of the market’s deficiencies of pricing hyper-growth SaaS companies with recurring revenue too cheaply (even though traditional metrics such as P/S and P/E made them look expensive, clearly in hindsight, a company like TTD for 10 P/S when it was growing at 35%+ YoY was way too cheap)
But even with those standards of valuing a stock, don’t you think DOCU at least now too expensive?
Let’s not forget, at some point, investing could turn into speculation, and instead of enjoying high returns from revenue growth, you are enjoying that + returns from P/S expansion. (OR in some cases where there are no revenues and such companies don’t get talked about here thankfully, a stock is simply bought because the price is going up)
Clearly, the former way of making money in stocks is better or more sustainable than the P/S expansion way, because what can expand can easily contract (not that revenue growth cannot slow down and many times it does all of a sudden as if there was some sort of force applied from the opposite direction)
GARP, at 61% revenue growth a high price to sales drops very rapidly. At this level of growth I say DOCU is not particularly expensive.
I believe this board has attracted the attention of trolls when these high growth/high valuation stocks experience drops in price. Maybe some folks are defensive.
What else (other than covid19) happened that boosted the confidence
• Well, it sure looks like a lot more money found its way to the stock markets, but I don’t have an exact figure for that.
• More concretely, interest rates have fallen (even more), and don’t appear to be headed up, anytime soon.
• As interest rates go down, it appears more money flows to the stock markets looking for yields and returns.
• Businesses borrow more ‘cheap’ money to expand even more aggressively.
• The lower interest rates also should affect the “risk free rate” that is used for investment analysis.
at 61% revenue growth a high price to sales drops very rapidly.
That’s an excellent point! And I keep reminding myself of that. I had sold SHOP, but when I realized this point, I bought it back a few days later.
I have been reading this board for a long time, and occasionally posted as well. I am looking to buy hyper-growth stocks right now that are selling off. I feel the stock market is throwing out the baby with the bathwater. Everyone has a different perspective of what the baby is and what the bathwater is. It is not clear in the stock market as it is in real life.
I am not sure yet about DOCU. Pretty sure where I stand with ZM. But definitely have many others on my radar that I want to buy viz. CRWD, DDOG, HUBS, PINS, etc and learning about more on this board.
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