What Happened?

Shares of e-signature company DocuSign (DOCU) jumped 8.3% in the morning session after S&P Dow Jones Indices announced the company would be added to the S&P MidCap 400 Index before the opening of trading on Friday, October 11, 2024.

Being included in the index means that DocuSign will likely be held by many mutual funds and ETFs, which could potentially drive up demand for the stock.

We note that while buying of the stock could increase, this development does not change the fundamentals of the company. Revenue growth, expense efficiency, and capital intensity of the business, for instance, are not impacted by index inclusion or exclusion, so this is more of a technical tailwind for the stock.

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What The Market Is Telling Us

DocuSign’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 7 months ago when the stock gained 14.4% on the news that the company reported fourth-quarter results that exceeded analysts' revenue, billings, and EPS estimates. Guidance was also decent, with revenue production for the next quarter coming in ahead of expectations, while full-year guidance was roughly in line. Management highlighted the top drivers for the improved growth performance, including 1.) Solid execution around renewals, especially with large customers 2.) Stabilization in customer usage and retention 3.) Strong new customer acquisition volume. Even though guidance suggests a slowdown in growth, this quarter's results seemed fairly positive.

DocuSign is up 18.8% since the beginning of the year, and at $67.69 per share, has set a new 52-week high. Investors who bought $1,000 worth of DocuSign’s shares 5 years ago would now be looking at an investment worth $1,048.

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