With the year-end right around the corner, it is more important than ever to ensure that your portfolio is in the best position, with the right balance of upside and value or momentum, whatever your diet and appetite prescribe. A VIX below 15.0% (lowest since 2019) is making that harder today than all of 2023.
Judging by the price action in the technology stocks sector, namely the Technology Select Sector SPDR Fund (NYSEARCA: XLK), which has beaten the S&P 500 by as much as 28.7% on a year-to-date basis, it seems that all the bullish sentiment is concentrated in this space.
DocuSign (NASDAQ: DOCU) became an investor favorite during the peak years of the COVID-19 pandemic, where almost all business activity had to be done online. Signing documents depended on DocuSign's services, just like most 'data rooms' have come to rely on HubSpot (NYSE: HUBS) to function. However, the appreciation has been sort of one-sided lately.
A new way to do things
While some may not like it, you must admit that the savings on legalities, the time taken, and the physical materials make DocuSign all the more essential in today's globalized economy. The timely delivery of agreements and their confidentiality are key for corporate profits.
Think about it: when you need to organize customer information and ensure that a team of sales specialists can get the job done on a reliable basis, very few names other than Salesforce (NYSE: CRM) come to mind.
This stock drove its market capitalization from roughly $130 billion at the beginning of 2023 to a high of $242.6 billion; this behavior can only come from deeply entrenched brand penetration, something Buffett would call a moat.
Run this exercise again, but think of sending someone a document that needs to be urgently signed and returned to you. Would you trust anyone other than DocuSign to get the job done? Yeah, it's the same with millions of businesses and contractors out there today.
It may be hard to accept, but the days of faxing signed documents back and forth are over; it can now be done from the comfort of your palm (given you are holding a phone), which also makes record-keeping easier. But anyway, surely you know the benefits of DocuSign by now, but does the market?
Investing in technology names typically brings a certain level of added risk via a higher beta. Beta is a fancy way of comparing how a stock moves next to the S&P 500.
A beta of 1.0 means an equal expected move, more than 1.0 indicates a more aggressive move and a less volatile behavior if below 1.0.
DocuSign can be part of those low-beta stocks that bring low volatility into your portfolio, matching today's market sentiment as judged by the lowest VIX in almost 5 years. So, the stock is safe, and its price has plummeted from its all-time high of over $300.0 back in 2021.
But is it cheap for a reason? Only the mood swings that overcame a hysteria seen back in the peak years of lockdowns and work-from-home trends, when every investor thought this stock could go nowhere but up. The truth is, the fundamentals are still intact.
COVID-19 was only the beginning; millions of businesses adopted and have kept DocuSign as their main provider for these signing services. Yet the stock price is acting like the party is over.
Analysts will come to bring a reality check in this situation. By assigning a consensus price target of $61.7 a share, there is an implied upside of 34.5% from today's prices. Does that sound like a dying business now?
In fact, the second quarter of 2023 saw an 11% annual revenue increase for the business, which was driven mainly by subscription revenue jumps. More than that, Free cash flow nearly doubled to $183.6 million compared to $105.5 million a year prior.
So, look, subscriptions are on the rise (which proves the still strong adoption rate for services). On a fundamental business level, free cash flow (the lifeblood of business) is also on the rise.
There has to be a reason why Morgan Stanley (NYSE: MS), the company's second-largest shareholder, has upped its stake by 1.7% in the past quarter, just in time for a potential earnings beat and a jump in the stock price.
Let everyone else focus on today's popular stocks, but do yourself a favor and keep an eye on this one; it may surprise you soon.