DocuSign's stock surged to new highs before pulling back sharply when the AI bubble burst and the market sold off in mid-February 2025. That drop was made worse by analysts upping recession odds to 79% from 40%, which could stretch out SaaS sales cycles and pressure growth. I believe this kind of panic creates a rare buying opportunity in high-quality enterprise software with secure recurring revenue. In my view, DocuSign is largely insulated from any tariff fallout, and its growth story is heating up again thanks to early wins in its identity and access management platform and a clear rebound in enterprise expansion. I expect DocuSign to get back to low-teens growth starting in FY27 if it keeps executing on IAM adoption and upselling into larger accounts.

DOCU Data by GuruFocus

Services-Based Shield Against Tariffs

I find it comforting that DocuSign earns about 70% of its revenue in the U.S., especially now with recession worries and tariff talk everywhere. Most of the new levies hit physical goods, not cloud services, so DocuSign's SaaS model is largely insulated. Sure, higher inflation and interest rates could pressure growth stocks, but I believe backing a U.S.-centric software business makes sense right now.

On the metrics front, the demand picture remains strong. DocuSign delivered an 84.1% subscription gross margin, a 29% adjusted operating margin, and a 101% dollar net retention rate in Q4. After battling higher churn among smaller clientsand feeling the impact of widespread layoffsthe company bounced back to over-100% net expansion and broke a multi-quarter retention slump. To me, that signals expansions are beating churn again and that the business is reaccelerating.

IAM Platform Sparks Growth and Enterprise Wins

The real game-changer for DocuSign, in my opinion, has been the launch of the Intelligent Agreement Management (IAM) platform in May 2024. Instead of just helping people sign PDFs, IAM uses AI to pull key insights from contracts, automate workflows, and cut down contracting cycles by up to 75%. I honestly see this move as DocuSign stepping toward a CRM-style product in a huge market. Just to put it into perspective, DocuSign's $17.3 billion market cap is tiny compared to the $268 billion market leader, so there's a lot of room for growth here.

[Docusign Investor Presentation]

IAM has already been a huge hitby Q4, it was powering over 20% of DocuSign's direct new-customer deals, making it the fastest-growing product in the company's history. That momentum helped drive a 22.7% sequential jump in billings, and management is guiding for billings to rise 9% YoY in FY26. Right now, IAM only makes up a low-single-digit share of subscription revenue, but DocuSign expects that to climb into the low double digits by Q4 2026. That basically means IAM's contribution should 3x and add around 3% to total growth in FY27.

When I dug into the numbers myself, I noticed something interesting: while overall net dollar retention (NDR) is around 101%, customers who are using IAM are spending more and sticking around longer. I believe that's because IAM lets them automate more agreement workflows, shrink approval times by 75%, and plug into other apps a lot more easily. All of that just makes the platform way more valuable to them. IAM users are not just renewing their contractsthey're expanding and upgrading too, which is exactly what I want to see if I'm investing in a cloud business. On the flip side, the older e-signature product still works really well but it's already a mature market. There's just less room for big upsells, and that's why I think retention there has stayed flat or dipped a littlepeople get what they need and don't spend much more after that.

With IAM though, every new AI feature or add-on is another excuse to sell more to customers, which is why I'm convinced that net retention could eventually move past 110%, maybe even reach Adobe's 117% top-end number. Enterprise traction looks strong too. In Q4 2025, DocuSign added 56 accounts with annual contract values (ACV) over $300,000the best number for that tier since Q3 2023. To me, that shows that IAM is helping DocuSign not just land bigger clients but also close bigger deals, fixing some of the problems they had with direct sales in the past. That's why I feel good about DocuSign's decision to spend about 20% of its revenue to scale up IAM. I don't see it as just a costit looks like a smart investment that should boost customer spending and lower churn over time.

Guidance, Cash Flow, and Balance Sheet Strength

Looking ahead, management expects FY 26 revenue of $3.13 billion (up 5% YoY) and a slight dip in adjusted operating margin to 28.3%, driven by cloud-migration costs, a litigation reserve, and a shift toward cash compensation. While they forecast 12 points of margin compression, I'm confident further operating efficiencies will offset much of that. More importantly, the billings backlog should convert into accelerating revenue late in FY 26 and into FY 27.

[Docusign Investor Presentation]

DocuSign's balance sheet also gives me peace of mind. With zero debt, $1.09 billion in net cash, and $920 million in free cash flow (+3.7% YoY), the company can weather near-term uncertainty and keep investing in growth. Management aims for free cash flow margins about 250 bps above operating marginsat 29% guidance that implies roughly $1.3 billion in FCF for FY 26. Having that cash generation on tap strengthens my conviction that DocuSign can fund its expansion and ride the IAM-driven growth wave.

Attractive Valuation Relative to Peers

I believe DocuSign's current multiples make it a compelling buy. The stock trades at a 21.47x forward non-GAAP P/E, slightly above its one-year average of 20.31x but far below the five-year mean of 104.62x. On a three-year forward basis, DocuSign sits at just 17.1x earningscheaper than Intuit at 23.1x, Microsoft at 21x, AppLovin at 20.4x, Workday at 19.3x, and SAP at 26.8x. Even if we assume a modest rerating to 20x forward P/E, that implies a target of $90about 15% upside from here. Looking further out, with FY2028 consensus EPS of $4.49, a 21.5x multiple points to roughly $96.40a potential gain of 17%. My view is simple: you buy stocks when they're on sale, and I don't see a deeper bad news scenario than where we are today.

[Author's workings 3-year forward earnings multiples]

DCF Confirms a Margin of Safety

To double-check my bullish case, I ran a basic DCF. I assume DocuSign grows back into the low-teens over the next three yearsflat-lining at 6% YoY in FY26 per management guidance, then accelerating linearly through FY29 to about $4.2 billion in revenue. I conservatively assume no margin expansion, given ongoing IAM reinvestment, and apply a 10% discount rate with a 3% terminal growth. Even under those cautious inputs, the model yields an $90 fair valuearound 10% above today's price. That buffer, in my opinion, offers a comfortable margin of safety and reinforces why I'm bullish on DocuSign at these levels.

Wrapping Up

I'm bullish on DocuSign because it weathers the tariff storm and its numbers simply add up. We're finally seeing growth turn a cornerIAM adoption is ramping, big-deal wins are back, and digital channels are firing on all cylinders. Those shifts show up in accelerating billings growth, improving net retention, and firmer revenue trends. If DocuSign keeps this momentum, I expect the stock to rerate higher as the market recognizes a return to low-teens revenue growth. Now feels like the right time to buy.

This article first appeared on GuruFocus.