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(Source: TC2000.com)
DocuSign (DOCU) and Atlassian (TEAM) have underperformed the Nasdaq Composite over the past six months, with the Software Sector lagging the Nasdaq Composite after an impressive rally off the March 2020 lows. While this underperformance has been a little disappointing, it’s to be expected, as even the best growth stocks need time to build new bases after a triple-digit performance in less than a year. The good news is that these multi-month consolidations have allowed DOCU and TEAM to grow into their valuations a little, with TEAM now trading at 131x FY2023 annual EPS estimates and DOCU trading at 102x FY2024 annual EPS estimates. These are not cheap valuations by any means, which trades at a deep discount to peers currently. However, for high growth stories with 75% plus margins like this, I would expect further weakness to improve valuations should present a buying opportunity, given how strong these names acted during the recent correction.
