HubSpot (NYSE: HUBS) develops Internet marketing software solutions. The company was founded in, 2005, and is headquartered in Cambridge, MA.
The company's stock is trading at $503.94, as of 29 Mar 2022, and is down by 17% year-to-date (YTD). On an annual basis, the stock is up by 19% whilst the S&P 500 is up by 16%, which means the stock has performed better than the broader market by approximately 3% over this period.
What do the underlying trends at Hubspot tell us about its potential as a long-term investment? Let’s take a closer look and see what the numbers tell us.
The importance of fundamentals
To better understand the underlying trends at Hubspot and analyze if the company will be a good 'buy and hold' investment, it’s good to start by getting an overview of the fundamentals.
By 'fundamentals', we mean a set of key metrics which include price to book value (P/BV), price to sales ratio (P/S ratio), earnings per share (EPS) and debt. When looked at together, fundamentals can tell us whether or not a company is likely to be a good investment, and for as long as investors have been buying stocks, they have relied on fundamental analysis to assess the financial health of an organization as well as its growth prospects.
What do Hubspot’s fundamentals tell us about the investment opportunity? Let's have a look.
HUBS stock fundamental analysis
First of all, let's look at Hubspot's EPS, which indicates how profitable the company is on a 'per share' basis. This metric is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
Hubspot's EPS is -1.7 based on figures from its most recent financial statements, and this climbed by 13% year-on-year, which is a positive sign.
Next, let's look at the P/S ratio, which looks at a company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues. The consensus opinion is that stocks with a lower P/S ratio offer better value, and stocks with a very low P/S ratio are known as 'value stocks'. However, what is considered a 'high' or 'low' P/S Ratio is relative and can vary across different sectors, so the best way to objectively assess this is to compare a company against its industry peers.
Hubspot's P/S ratio is currently 17.7. With a P/S ratio of 17.75, the company is slightly overpriced compared to similar companies within the same sector. The sector-wide average is 3.7, which is 380% higher than Hubspot's.
We also like to look at a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
According to its last reported filings, Hubspot's P/BV is 26.7, which is 248% higher than the industry benchmark of 7.7.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
Hubspot has total debt of $713m as of 29 Mar 2022, and this has decreased by 10% over the past year. The company also has cash & short-term investments totalling $1.2bn, giving it a 'net debt' of $-485m.
Based on these figures, Hubspot's current levels of net debt don't worry us, as the company generates enough revenue to service its debt, and is not using debt to fund their operations, which is good to see.
The verdict: Is HUBS a buy?
When we looked at the trends with Hubspot’s stock, we saw some encouraging signs but some didn't give us much confidence.
Specifically, the stock is up by 19% over the past year but down by 17% YTD. Moreover, although it's good to see it is showing positive EPS growth y/y, we can't ignore the fact that, compared to companies in the same sector, it has a higher P/BV and higher P/S ratio.
In summary, although there are positive signs, we're not ready to say that Hubspot deserves a place in your portfolio just yet, but we'll certainly be adding the stock to our watchlist.
Please note that this analysis is general in nature and whether Hubspot is a ‘buy’, ’sell’ or ‘hold’ for you will depend on your specific investing objectives, personal circumstances and risk tolerance. This analysis is based on historical data and does not take into account the wider macroeconomic environment, geopolitical issues or individual technicalities in the way a company conducts its business which can have a significant impact on a company's long-term outlook. Please conduct your own due diligence on Hubspot before making an investment decision.