Shares of DocuSign(NASDAQ: DOCU) charged out of the gate on Tuesday, surging as much as 9.3%. As of 12:50 p.m. ET, the stock was still up 8%.
The catalyst that sent digital signature and contract lifecycle management specialist higher was an announcement the company would be joining one of the premier stock market indexes.
Meet the newest member of the S&P Midcap 400
An announcement that dropped after the market close on Monday revealed that DocuSign would be joining the S&P Midcap 400. The stock will be replacing MDU Resources Group when the market opens on Oct. 11. In a press release that provided details about the reshuffling, S&P Global also noted that MDU Resources would be replacing Chuy's Holdings in the S&P SmallCap 600 after the announcement that Chuy's would be acquired by Darden Restaurants.
Stocks often gain ground initially when they join one of the benchmark indexes because funds and institutional investors that track them must buy shares in order to replicate their holdings.
Should investors buy DocuSign now?
To be clear, DocuSign joining the S&P 400 is no reason to buy the stock. That said, there are an increasing number of reasons to be bullish.
The company fell out of favor with many investors after its price spiked during the height of the COVID-19 pandemic, only to lose as much as 86% of its value in the years that followed. It's been a rocky ride, but DocuSign stock is up 61% over the past year as the company has embraced the artificial intelligence (AI) revolution.
For the first six months of fiscal 2025 (ended July 31), revenue grew 7% year over year. Excluding a one-time benefit from a tax provision, adjusted earnings per share (EPS) climbed 24%.
Fueling the results is the company's Intelligent Agreement Management, which leverages advanced AI for third-party identification, verification, and a host of add-on services. For customers with hundreds or even thousands of contracts to manage, the ability to use AI within the context of DocuSign's other services could be a game changer.
Finally, for investors willing to take on a bit of extra risk, the price is right. DocuSign stock is currently selling for just 14 times earnings, less than half the multiple of 30 for the S&P 500.
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Danny Vena has positions in Docusign. The Motley Fool has positions in and recommends Docusign. The Motley Fool has a disclosure policy.
