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Is There a Buying Opportunity in DocuSign Stock After 40% Drop?

DocuSign stock is down about 40% in a single day after reporting earnings. Is that an opportunity or a warning?

DocuSign  (DOCU) - Get DocuSign, Inc. Report bulls are not having a good day today, with shares down about 40% from Thursday’s close.

The culprit? Earnings.

Of course, it doesn’t help that the Nasdaq is 500 points off this morning’s high or that there’s a bear market in growth stocks.

Despite beating on earnings and revenue expectations, DocuSign issued disappointing guidance.

Management expects revenue of $557 million to $563 million for the upcoming quarter, short of consensus estimates at $575 million.

Many are likely bemoaning the fact that the stock is being cut down by billions of dollars in market cap for a ~$15 million miss in sales estimates.

That’s particularly true with the stock already down 25% from the highs before earnings.

It’s not just the guidance, though.

In a bear market — for growth stocks, anyway — management cannot come out and tell investors that the buying trends from its customers are changing or reverting without seeing the share price come under pressure.

From Wedbush analyst Dan Ives:

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“Last night was a debacle quarter from DOCU, as the high growth e-signature play hit a major growth hurdle during its October quarter with customer buying behavior that appeared to change overnight.”

Trading DocuSign Stock

Weekly chart of DocuSign stock.

Weekly chart of DocuSign stock.

There is not much to like about this chart. In fact, from a trading perspective, there is scant evidence that there’s any reason worth buying here.

Yes, the selloff is likely overdone. But that’s the kind of thing that happens with the type of backdrop we currently have in the market.

Even growth stocks with good results are being met with a sell-the-news reaction.

DocuSign stock is undercutting every major moving average it has, while absolutely ripping through prior range support near $186.

This is a really brutal reaction to earnings — and many investors are hoping this sort of action helps act as a capitulation in the growth space.

For those so inclined, a move back over $142 could be a level where DocuSign sees a larger bounce. That’s the 61.8% of the entire range.

Those who trade this risky setup should consider using a stop-loss near today’s low of day — or whatever price ends up being “the low” — before reclaiming the $142 level.

Otherwise, feel free to steer clear of DocuSign and simply use it as a proxy for other growth names.