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Shares of DocuSign (NASDAQ:DOCU) are trading over 6% lower in pre-open Tuesday after UBS analysts downgraded shares to Sell from Neutral.
The analysts highlighted a +54% move in DOCU shares since the December lows, which makes the valuation too expensive.
“21.2x CY24/FY25E FCF does not look compelling relative to Zoom and other low-growth software peers,” they said in a downgrade note.
DOCU shares reacted positively to last week’s announcement of a new 10% workforce reduction, which came after the company had slashed 9% of jobs in September.
“We were on the sidelines and Neutral-rated throughout 2H22 and into 2023, hesitant to move to an even more cautious rating based on a view that there was maximum negativity already embedded in the stock and that at 20x CY23/FY24E FCF, DocuSign’s multiple wasn’t demanding. Our view has changed given the +54% move in the stock off the December lows, the current CY23/FY24E FCF multiple of 26.0x and fundamentals that if anything have weakened,” they added.
The price target of $52 per share, which suggests a downside risk of about 20%, also takes into account lowered estimates for FY24.
