The Nasdaq-100 has been in sell-off mode since mid-February, but it officially entered correction territory this month when the losses exceeded 10% from the index's record high. However, history proves the U.S. stock market always climbs to new highs over a long enough period of time, and so the recent weakness is likely to be a buying opportunity for long-term investors.
Artificial intelligence (AI) stocks have been driving the broader market higher for the last couple of years, and while there is no shortage of high-quality opportunities to consider right now, there is one under-the-radar AI stock that many investors might be overlooking: Docusign (DOCU -2.72%). It has soared by 51% over the past year, but it's still trading 72% below its all-time high from 2021, so there is plenty of room for further recovery.
Docusign is a leader in digital document technologies that help businesses manage their contract lifecycles more efficiently, and AI is now central to its product suite. Its stock is attractively valued right now, especially in light of the company's steady revenue growth and soaring profitability in fiscal 2025 (which ended on Jan. 31). Here's why it might be a great long-term buy.
Image source: Getty Images.
Transforming contract management using AI
Docusign was a pioneer of e-signature technologies, before expanding its product portfolio to include other tools that help businesses draft, negotiate, and close agreements remotely.
But last year, the company overhauled its strategy by launching a new platform with AI at its core, called Intelligent Agreement Management (IAM). IAM is designed to solve the "agreement trap," which refers to the $2 trillion in economic value businesses lose every year to poor contract management procedures (according to Deloitte).
The platform includes a suite of innovative AI-powered products like Navigator, which is a digital repository where organizations can store all of their agreements. It extracts critical data from each contract so employees can find it using the search function, rather than manually digging through every individual document. Docusign says the typical IAM customer has uploaded over 4,000 agreements to Navigator, so this tool significantly reduces administrative workloads.
Maestro ties the IAM platform together. It's a no-code tool that allows businesses to easily create agreement workflows. For example, they can drag-and-drop features like eSignature, ID verification, and webforms into each contract, saving time and money while creating a smoother user experience for all parties in the process. Docusign says one customer, Metro Credit Union, is saving over 50 hours per month thanks to Maestro, because it reduces the amount of time required to process payment forms from five minutes to just seconds.
IAM has only been live for two quarters, and during the final quarter of fiscal 2025, Docusign said the platform already accounted for more than 20% of new customer deals, so it's quickly generating traction.
NASDAQ: DOCU
Key Data Points
Docusign's profits soared in fiscal 2025
Docusign generated a record $2.98 billion in revenue during fiscal 2025. It represented a modest growth rate of 8% compared to the previous year, but it was slightly above management's guidance of $2.96 billion.
The company could be growing more quickly, but it is instead carefully managing its costs to improve its bottom line. In fact, the company's total operating expenses came in at $2.15 billion during fiscal 2025 which was down slightly from the prior year, and that included a reduction in growth-oriented costs like marketing.
With more money coming in and less money flowing out, Docusign generated a record $1.06 billion in net income, which was an eye-popping 1,343% year-over-year surge. With that said, reduced spending wasn't the only contributor to the strong result, because the company utilized a one-off tax benefit of $819 million.
However, Docusign still generated $747.2 million in net income on a non-GAAP (adjusted) basis, which strips out that tax benefit (but also excludes noncash expenses like stock-based compensation). That represented growth of 19.8% compared to fiscal 2024, so no matter which way investors slice it, the company's bottom-line results are certainly trending in the right direction.
Docusign stock looks like a good value
As mentioned earlier, Docusign stock is down 72% from its record high, which was set during the tech frenzy in 2021. It was trading at a price-to-sales (P/S) ratio of around 40 at its peak, which was an unsustainable valuation, especially because the company couldn't maintain its rapid revenue growth from the pandemic period.
Based on Docusign's fiscal 2025 revenue, its stock now trades at a more reasonable P/S ratio of just 6.1, which is a 52% discount to its long-term average of 12.7 dating back to when it went public in 2018:
DOCU PS Ratio data by YCharts
To put it another way, Docusign stock would have to more than double just to trade in line with its long-term average P/S ratio. I'm not suggesting that will happen in the short term, because the company will probably have to deliver a sustained period of accelerating revenue growth to convince investors it's a good idea to pay up for its stock, and that isn't happening just yet. However, Docusign values its addressable market at $50 billion, so it has barely scratched the surface of its opportunity.
Docusign is also attractive based on its price-to-earnings (P/E) ratio of just 16.9, making it far cheaper than the Nasdaq-100 technology index, which trades at a P/E ratio of 28.5. However, Docusign's P/E ratio is 24.1 if you use its non-GAAP earnings from fiscal 2025 instead, which might be a better reflection of the actual state of play because they exclude the big tax benefit the company utilized last year. Nevertheless, that still makes the stock cheaper than the Nasdaq-100.
As a result, I think Docusign stock can build on its 51% gain over the past year and continue trending toward its all-time high of $310 over the long run.
