Because there is a potential upside of 66%.

With a gain of up to 60% since November, you might think that shares of DocuSign, Inc. NASDAQ: DOCU they had returned to their former glory.

An optimist would say it’s not a rally to be despised, and there are plenty of signs that it’s only just beginning. A pessimist, however, would point out that the shares are trading down more than 80% from their pandemic-inspired high in 2021 and are currently trading only marginally higher than where they IPO’d in 2018. That’s all true, of course, but Wall Street is nothing if not forward-looking and a stock can only be judged on its performance.

Bullish tailwinds

There’s no question that DocuSign is doing well. The e-signature software company’s fourth-quarter earnings last month crushed analysts’ expectations, while management’s forward guidance also proved attractive. The general consensus is that the company has weathered the worst of the storm, has more than justified the rally in its stock price (which began in November), and currently has enough tailwinds for further gains.

Analysts were impressed by the significant momentum of DocuSign’s AI product portfolio, which should lend itself to strong, profitable growth through 2025. There was also a welcome change in management’s approach to margin expansion, something that every investor likes it. There were several bullish updates and comments in the wake of the report, which helped fuel further gains, and this trend continued into April.

Recent analyst updates

Last week, Citi named DocuSign one of the top stocks on its Value Creators Focus List, giving it a new price target of $93. The fact that stocks, in general, are sliding this week has only made it more attractive and could support a rally of about 66% from where shares closed on Monday. JMP Securities also got in on the action, reiterating its Outperform rating last week, its $84 price target only slightly less bullish than Citi. If DocuSign shares hit either milestone in the next few weeks, they would be at their highest levels in two years.

It should be noted that some analysts have not yet declared themselves bullish and instead urge caution. For example, Royal Bank of Canada rated Docusign Neutral Sector Perform last week, echoing the Hold rating Needham assigned to the stock over the same period. And while UBS upgraded Docusign, it moved from Sell to Neutral.

Considering a position

The combination of analysts’ bullish, yet somewhat cautious attitude could be disheartening to some, especially as DocuSign started the week down 3.5%. To be fair, this appears to be a case of falling with the broader market, as both the benchmark S&P 500 and NASDAQ indexes are suffering from a surprise surge in inflation.

But there’s nothing new here; we have already dealt with the story of inflation. Overall, the Fed has succeeded in threading the needle, and while there will be bumps along the way like the one we’re seeing now, all signs point to inflation being under control. There’s no reason to think there will be too much easing of risk-on sentiment, which has helped stocks like DocuSign so much, and investors should watch closely to see what kind of entry opportunities are opening up.

Before you consider DocuSign, you’ll want to hear it out.

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