We recently published a list of 16 Best Mid Cap Growth Stocks To Buy Now. In this article, we are going to take a look at where DocuSign, Inc. (NASDAQ:DOCU) stands against other best mid cap growth stocks.

50 Basis Point Reduction: Exaggeration or Hidden Benefit?

Recent discussions among financial strategists emphasize the current stock market dynamics, particularly regarding the upcoming US elections. Investors are encouraged to view dips in stocks of some sectors as long-term buying opportunities, as historical trends suggest that 10% corrections can be advantageous entry points.

While recent sell-offs were driven by sector-specific issues rather than broader economic concerns, the long-term outlook remains positive. Despite recession worries, the US economy is stable, with strong consumer performance and corporate profits exceeding expectations. This has contributed to a rebound in the NASDAQ and S&P 500.

Inflation has reportedly dropped to a three-year low of 2.6% in August, marking the lowest rate since March 2021. As inflation continues easing, there has been ongoing speculation that the Fed may begin cutting interest rates, potentially starting with a 25 basis point reduction.

Market analysts, including Gene Goldman and Craig Johnson, anticipate multiple rate cuts due to slowing inflation and economic growth. We discussed this earlier in our article about the 12 Best Small Cap Tech Stocks to Buy. Here’s an excerpt from it:

“Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated….

Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.”

However, on September 16, Erika Najarian, UBS senior equity research analyst, mentioned that small and mid-cap stocks could potentially benefit from a 50 basis point cut.

Najarian attributes the recent underperformance of financial stocks to market concerns about the implications of potential rate cuts for economic stability, leading investors to question a less favorable economic outlook. She believes some anticipated cuts may already be reflected in money center bank stock prices due to their strong year-to-date performance. A 50 basis point cut could especially benefit mid-cap stocks affected by commercial real estate issues.

She explains that a 50 basis point cut would significantly impact net interest income. Money center banks benefit more from rising rates, while mid-caps are liability-sensitive and may see deposits repriced faster, favoring them if rates are cut aggressively.

The recent Basel III news with lower capital thresholds triggered negative stock reactions, exacerbated by JPMorgan’s comments on reduced investment banking and trading growth targets. Factors included ongoing Basel III discussions since December 2023 influencing pricing, a leading bank suggesting consensus net interest income expectations are too high, casting doubt on other banks, and emerging signs of consumer weakness potentially spreading beyond lower-income segments.

Najarian highlights the challenges analysts face in predicting net interest income due to shifting rate expectations. While higher rates have traditionally benefited bank profitability, potential cuts create uncertainty about financial performance. She points out that banks must choose between cutting rates to remain competitive or maintaining volume, complicating forecasts for net interest income.

As Najarian emphasizes the uncertainty surrounding interest rate cuts and their effects on the financial sector, and investors await clarity from the Fed, we’re bringing you a list of the 16 best mid-cap growth stocks to buy now.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Docusign Inc. (NASDAQ:DOCU)

Market Capitalization as of September 13: $11.49 billion

Number of Hedge Fund Holders: 44

Docusign Inc. (NASDAQ:DOCU) provides products for organizations to manage electronic agreements with electronic signatures on different devices, streamlining workflows and reducing paper consumption. Its software is used in industries like legal, real estate, human resources, and finance, with ~1.5 million clients in 180 countries.

The company launched the first version of its Intelligent Agreement Management (IAM) platform in Q2, which is a rather significant release in its history as it has the potential to address the $2 trillion in lost economic value organizations face when managing agreements.

IAM was introduced to small and mid-sized commercial customers in the US, Canada, and Australia, and its training for salesforce teams is a Q3 focus.

In the second quarter of this year, revenue for the company was $736.03 million, recording an improvement of 7.03%. The earnings per share were $0.97. Both metrics beat Street estimates. This strong performance reflects the company’s focus on enhancing product innovation, evolving omnichannel go-to-market strategies, and boosting operational efficiency.

Direct customer growth remained strong, up 12% year-over-year. Large-value customers with over $300,000 in ACV saw modest improvement. Contract Lifecycle Management (CLM) revenue growth exceeded overall growth, while the company strengthened partnerships with Microsoft, SAP, and Salesforce, with co-selling through the Azure Marketplace and Copilot integrations.

Docusign Inc.’s (NASDAQ:DOCU) early results with its new IAM platform are promising, with higher win rates, larger deal sizes, and faster time to close. Customer adoption is increasing month-over-month, and the company is focused on continuously enhancing IAM’s value to more customers. This positions the company for long-term success.

Polen Focus Growth Strategy made the following comment about DocuSign, Inc. (NASDAQ:DOCU) in its Q3 2023 investor letter:

“We eliminated our remaining 1% position in DocuSign, Inc. (NASDAQ:DOCU). While the company remains the leader by a wide margin at the higher end of the digital signature market, it has become clearer to us that its addressable e-signature market is likely significantly smaller than we had believed or will take much longer to develop than we had anticipated. The lower end of the market is highly competitive. We were patient with our very small position. Impressive new management joined from Google and The Trade Desk in hopes of them being able to reinvigorate growth in core e-signature. Still, it does not appear that this is likely anytime soon with new management articulating that the company will need to develop new products to achieve higher levels of e-signature growth despite what we considered to be low penetration rates within existing e-signature products. As such, we used the proceeds of our sale as part of the funding for our Novo position.”

Overall, DOCU ranks 10th on our list of best mid cap growth stocks to buy now. While we acknowledge the potential of DOCU as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DOCU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.