As far as earnings are concerned, this is the tail end of a season most traders consider over. In addition, this is a short week, and there are no quarterly results scheduled for release this Friday. This is it, gang. If you're the kind of trader that likes to trade or invest around earnings, this afternoon is as big as it gets this week. You'll hear from Broadcom (AVGO) , you'll hear from CrowdStrike (CRWD) , you'll hear from Lululemon Athletica (LULU) . The one you might miss, and just might be among the most interesting would be DocuSign (DOCU) , a name requested by a reader last night.
(Joining TheStreet live this morning is the one and only Stephen "Sarge" Guilfoyle, Real Money contributor to talk AMC, Workhorse, Tesla and much more.)
Expectations
Wall Street consensus view for DocuSign is for EPS of $0.28 on revenue of $437.7 million. These numbers, if realized, would be good for year over year earnings growth of 133% (down sequentially) and sales growth of 48%, which would be a slight deceleration from the past two quarters. Of the 15 analysts that I can find that follow this name, nine have upped their initial revenue estimate at some point over the past three months, with six staying put. Eleven of those 15 have increased their initial projection for EPS, while one actually reduced.
Yesterday I expressed doubts about the future of Zoom Video (ZM) going into a post-pandemic economy. Not a doubt that Zoom could continue to be profitable, but doubts that Zoom could continue to be valued as if it were a growth stock. Well, DocuSign provides for a "work from anywhere" culture much like Zoom Video does. I think, however, whereas business culture has probably grown weary of virtual meetings, they might just continue to rely upon the convenience of just what DocuSign provides.
What DocuSign provides is obviously the e-signature for business and other important documents. That area is not exactly high tech and faces competition from the likes of Adobe (ADBE) and privately held PandaDoc. Where DocuSign may have to rely for future growth generation will be in its collaborative contract solution that allows legal documents to be edited in real-time as negotiations take place rather than having lawyers send such documents back and forth. The firm also has a document reader that saves time by flagging whatever it has been programmed to find.
Here's The Deal
DocuSign is expensive. Not as expensive as Zoom Video that trades at 35 times sales, but still DOCU trades at 26 times sales. Not earnings. The stock trades at 147 times forward looking earnings, which could be dangerous in this environment. Yes, revenue is growing triple digits, but so are expenses, which pressures margin. The firm is in decent enough shape. As of three months ago cash on hand and short-term investments combined were larger than total debt. Cash flows are positive, and the firm sports a Current Ratio greater than 1.0.
The fact is that I see this stock as tradeable with potential for investment. The firm could reduce marketing expenses in order to goose margin. That could leave an opening for Adobe, but it may be worth a try. Has the brand reached that level as names such as Xerox (XRX) once had, where everyone knows the product by the brand?
The Charts
The shares exploded through the first half of the pandemic...
...but have gone sideways for nearly a year.
Traders will see that as a downward sloping trend has started to form coming out of that long period of consolidation that these shares in recent days have tried to both reka out of a potential pitchfork, while also retaking the 21 day EMA at $199. Holding that line would set up a run at $206, the 50 day SMA, or beyond.
However, we see that this morning DOCU has opened below the 21 day EMA.
My Conclusion
The equity is too risky to invest in ahead of tonight's numbers. Intraday swing traders can use that 21 day line to their short-term advantage. If interested, an investor could get long $200 calls expiring tomorrow (4 June) for about $4.80, and sell a like amount of $205 calls with the same expiration for roughly $2.75. In effect, betting $2.05 in an effort to win back $5.
(Broadcom is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AVGO? Learn more now.)
