HubSpot, Inc. (HUBS) is a leader in marketing software. It provides a cloud-based customer relationship management (CRM) platform for businesses. The company recently reported strong financial results, beating the analysts’ expectations and matching its guidance. Its strong earnings and revenue growth have positioned it as a compelling investment option.

HUBS’ stock has been on a growth rally this year, attracting investors for a long-term run. The stock has gained 21.6% over the past month and 44.6% over the past year to close the last trading session at $677.07.

Further, the company stands to outperform in the coming periods with the rapid evolution in digital technologies, especially AI, which HUBS is increasingly incorporating into its operations. Also, with the rising prevalence of social media, online platforms, and other digital channels, HubSpot’s growth opportunities are endless.

During the third quarter, HubSpot acquired Cacheflow, resulting in domain expertise in billing and CPQ. Also, the company introduced Breeze and Breeze Intelligence, its newest innovations for powering the customers platform. The company is making strong strides in expanding its operations in the segment and firming its market position even further.

Let’s look at factors that could influence HUBS’ performance in the upcoming months.

Positive Recent Developments

On October 30, HUBS successfully completed the acquisition of Cacheflow, a leading B2B Billing Management and CPQ Solution. Now, Cacheflow is a wholly owned subsidiary of HubSpot and will be integrated as an offering within Commerce Hub over time.

With this strategic acquisition, HUBS will gain domain expertise in billing and CPQ. This will enable the company to build these critical features directly into Commerce Hub, providing its customers with an experience that automates revenue management and shortens the sales cycle.

On September 18, HUBS introduced Breeze, an embedded AI with a new Copilot and four Breeze agents to power the customer platform. It includes over 80 more features embedded across the platform, from remixing content to predicting sales forecasts.

The company also launched Breeze Intelligence offering data enrichment, Buyer intent, and Form shortening to increase conversion. HUBS also announced updates to Marketing Hub and Content Hub, giving marketers new tools for growth.

On the same date, HUBS and Amplitude, Inc. (AMPL), a leading digital analytics platform, announced a global strategic partnership to help Go To Market (GTM) teams close more deals. This strategic partnership will enable GTM teams to automatically prioritize leads, improve sales conversion, and retain more customers.

Stable Financials

For the third quarter that ended September 30, 2024, HUBS reported total revenue of $669.72 million, up 20.1% from the prior year’s quarter. Its gross profit for the quarter grew 20.9% from the year-ago value to $570.40 million. The company’s non-GAAP net income came in at $116.60 million and $2.18 per share, reflecting growth of 37.3% and 34.6% year-over-year, respectively.

Furthermore, the company’s non-GAAP free cash flow increased 99.6% year-over-year to $129.23 million. Also, HUBS’ total assets stood at $3.56 billion as of September 30, 2024, compared to $3.07 billion as of December 31, 2023.

The company issued its guidance for the fourth quarter, anticipating total revenue between $672 and $674 million. It also expects non-GAAP operating income to range from $128 million to $129 million and non-GAAP net income per common share to be $2.18 to $2.20.

For the full year 2024, the company’s total revenue is expected to be $2.597 billion to $2.599 billion. HUBS’ non-GAAP operating income is set at $455 million - $456 million. Non-GAAP net income per common share is projected to be in the range of $7.98 to $8.00.

Impressive Historical Growth

HUBS’ revenue grew at a CAGR of 28.4% over the past three years. Its tangible book value increased at a CAGR of 23.9% over the same period, while the company's total assets and levered free cash flow grew at respective CAGRs of 19.9% and 32.2% over the same time frame.

Favorable Analyst Estimates

Analysts expect HUBS’ revenue for the fourth quarter (ending December 2024) to come in at $673.68 million, indicating an increase of 15.8% year-over-year, and its consensus EPS estimate of $2.20 for the same period indicates a 24.8% improvement year-over-year. Moreover, the company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is remarkable.

For the fiscal year (ending December 2024), the company’s EPS is anticipated to grow 35.8% year-over-year to $8, while its revenue is expected to increase 19.7% year-over-year to $2.60 billion. In addition, Street expects its revenue and EPS for the fiscal year 2025 to grow 15.8% and 14.2% from the prior year to $3.01 billion and $9.14, respectively.

Elevated Valuation

In terms of forward non-GAAP P/E, HUBS is currently trading at 84.62x, 249% higher than the industry average of 24.25x. Likewise, the stock’s forward EV/Sales and EV/EBITDA of 13x and 62.24x are significantly higher than the industry average of 3.01x and 14.83x, respectively.

Furthermore, the stock’s forward Price/Sales and Price/Book of 13.45x and 18.61x are 348.6% and 334.3% higher than the industry averages of 3x and 4.29x, respectively.

POWR Ratings Reflect Uncertainty

HUBS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HUBS has a B grade for Sentiment, which is consistent with its optimistic analyst estimates.

However, the stock has a D grade for Value, consistent with its higher-than-industry valuation.

HUBS is ranked #22 among the 39 stocks in the B-rated Software - Business industry.

Beyond what I have stated above, we have also given HUBS grades for Growth, Stability, Momentum, and Quality. Get access to all the HUBS ratings here.

Bottom Line

HUBS reported solid financial results in the last reported quarter. The company has a strong presence in the software market, offering a wide of services to its customers. It also continues to expand its operations through innovative solutions and strategic acquisitions, which are contributing to strengthening its market position.

However, owing to its elevated valuation and rigid market competition, it could be wise to wait for a better entry into this stock.

Stocks to Consider Instead of HubSpot, Inc. (HUBS)

Given its near-term uncertain prospects, the odds of HUBS outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the B-rated Software - Business industry instead:

SolarWinds Corporation (SWI), RingCentral Inc. Cl A (RNG), and VMware Inc. (VMW)

For exploring more A and B-rated software stocks, click here.

What To Do Next?

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HUBS shares were trading at $668.28 per share on Monday afternoon, down $8.79 (-1.30%). Year-to-date, HUBS has gained 15.11%, versus a 24.92% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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