DocuSign (DOCU -2.72%) stock surged 15.4% through 10:30 a.m. ET Friday after reporting a modest earnings beat last night.
Heading into the fiscal fourth quarter 2025 report, analysts forecast DocuSign would earn $0.85 on $761.6 million in sales. In fact, earnings were $0.86, and sales were $776.3 million.
NASDAQ: DOCU
Key Data Points
DocuSign Q4 earnings
Sales climbed 9% year over year, and billings rose 11%, foreshadowing even faster sales growth ahead. If there was "bad" news in the quarter, it's probably that DocuSign's "$0.86" in profit was only a non-GAAP number, and that real earnings as calculated according to generally accepted accounting principles (GAAP) were only $0.39 per share. Then again, last year in Q4, DocuSign earned only $0.13, GAAP. So even just $0.39 is a 3x increase in profit!
Free cash flow for the quarter also improved year over year, to $279.6 million.
Is DocuSign stock a buy?
For all of 2024, DocuSign reported just under $3 billion in revenue, up 8% year over year, with per-share earnings of $5.08. Thus, DocuSign stock currently sells for about 17 times trailing earnings.
Is that a good or bad price?
Well, turning to guidance, DocuSign forecasts $3.1 billion in revenue for the current fiscal year 2026, which works out to revenue growth of about 5%. Management gave no guidance for GAAP profit, but if earnings grow in line with sales, this implies the stock is overvalued at a PEG ratio over 3.
But the actual situation could be worse than that. While management didn't forecast earnings per se, it did warn that (non-GAAP) gross profit margins are going to be lower in fiscal 2026 than they were in fiscal 2025 -- about 81%, versus more than 82% last year. And that means it's likely profits will actually grow slower than sales over the next 12 months. It also means DocuSign stock is probably even more expensive than it looks.
I don't know about you, but to me that looks like a clue that it's smarter to sell DocuSign stock today than to buy it.
