What happened
Shares of document-management leader Docusign (DOCU +0.26%) fell 6.7% today, as of market close. It's a new year, but the narrative surrounding fast-growing tech stocks remains the same as it was for much of 2021: Fear of rising interest rates keeps pushing growth stocks down.
Image source: Getty Images.
So what
Specifically, minutes from the Federal Reserve's last meeting indicate that a more aggressive raising of interest rates and other moves to try and tame inflation might be in store sooner rather than later. As a result, yields on 10-year Treasuries jumped to just over 1.7%, the highest they've been since March 2021, and are closing in on the 1.9% pre-pandemic rate at the end of 2019. As a reminder, higher interest rates reduce the value of future cash flows, which tends to lower the value of a stock in the short term.
Now what
In addition to the interest-rate dilemma that's plaguing growth investors, Docusign's guidance for the final quarter of the current fiscal year (which comes to an end on Jan. 31) was a disappointment to some shareholders. At the midpoint, management said to expect a 30% year-over-year jump in revenue, a slowdown from the 42% growth rate notched in Q3.
Docusign, along with other high-growth but richly valued names, is thus undergoing an aggressive repricing by way of market forces. However, that doesn't alter the long-term potential this leading cloud-software company still has. Cloud services are expected to remain a double-digit secular-growth trend throughout the 2020s, so Docusign stock is far from dead money.
However, at over 14 times current-year expected sales-to-enterprise value and 67 times one-year forward earnings, Docusign isn't "cheap" by most value-investor metrics. Expect more volatility ahead. But for investors who are in it for the long haul (at least a few years, but the more the better), Docusign could be a great buy after falling 50% from it's all-time high reached late last year.
