While it may not be enough for some shareholders, we think it is good to see the DocuSign, Inc. (NASDAQ:DOCU) share price up 16% in a single quarter. But that doesn't change the fact that the returns over the last three years have been stomach churning. In that time the share price has melted like a snowball in the desert, down 71%. So we're relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround.
With the stock having lost 5.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
We don't think that DocuSign's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Over three years, DocuSign grew revenue at 19% per year. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 19% per year is due to the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
DocuSign is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
DocuSign provided a TSR of 8.5% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 1.3% per year over five year. This suggests the company might be improving over time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - DocuSign has 2 warning signs we think you should be aware of.
But note: DocuSign may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.