Trading Nation

DocuSign is now larger than two-thirds of S&P 500 stocks. Here's where it may head next

Trading Nation: What to expect from Docusign's earnings after the bell
Trading Nation: What to expect from Docusign's earnings after the bell

Work-from-home stock DocuSign is taking a pause from its massive rally this year.

The shares fell 9% on Thursday, a victim of the broader market sell-off, after a more than 200% gain so far in 2020. That surge has pushed its market cap to $45 billion, larger than roughly 70% of S&P 500 companies.

"They are truly one of the champs of the work-from-home environment," Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC's "Trading Nation" ahead of its earnings release on Thursday.

The company reported better-than-expected earnings after the bell Thursday. Profit of 17 cents a share was 10 cents higher than analysts surveyed by FactSet expected. 

"Of course, it [does have a] ridiculous, absolutely insane valuation at 50 times sales. So it's just the question of whether the market is going to feel kind enough to pick it up even if they do beat very, very hard. If they just come in in-line that really sets us up for a much bigger decline on the short term," said Schlossberg.

He said buyers should be looking to the long term given how vulnerable the stock could be to short-term volatility.

"This is a trend that will stay with us past Covid. Covid just simply accelerated the idea that digital signing contracts is the future. It's a very boring, but a very necessary space. It's dominating that space. So I really like it long term, even though there's just absolutely no doubt that it can be very, very turbulent over the near term, and it's really not for the faint hearted as far as trade ideas go now," said Schlossberg.

Craig Johnson, chief market technician at Piper Sandler, said the technicals support more upside for DocuSign.

"I would state it as innocent until proven guilty. When you look at this chart, you can see that the long-term uptrend is still very much intact. All we've got is sort of a correction back to an area of support, back to the uptrend, back to the rising 50-day moving average," Johnson said during the same "Trading Nation" segment.

DocuSign fell into a correction on Thursday having dropped 18% from its record high set a day earlier.