Founded in 2006, HubSpot (NYSE: HUBS) is a stock that is valued at a market cap of $37.2 billion. HubSpot provides an enterprise-facing cloud-based CRM (customer relationship management) platform that includes sales, marketing, and content management systems in addition to integrated applications that enable companies to establish an online presence.
HubSpot went public in October 2014 and has since returned over 2,600% to investors, easily outpacing the broader markets. But let’s see if HubSpot stock is a good investment right now.
The bull case for HubSpot
HubSpot has successfully managed to expand its suite of products and solutions over the years and is one of the leading players in the CRM space. The company has increased its customer base at an annual rate of 36% in the last four years. At the end of Q2, HubSpot had over 121,000 customers. Further, around 30% of these enterprises use more than three HubSpot products, up from just 6% in 2017.
This has allowed HubSpot to increase sales from $375.6 million in 2017 to $883 million in 2020, an annual growth of 33%. Wall Street expects revenue growth to accelerate by 44% to $1.27 billion this year and increase by 22% to $1.63 billion in 2022. Comparatively, its adjusted earnings is expected to rise from $1.32 per share in 2020 to $2.44 per share in 2022.
HubSpot’s expanding customer base, improving profit margins and rising customer spending on its platform has allowed the company to consistently outpace the markets and deliver robust returns to investors.
HubSpot has estimated its total addressable market at $87 billion giving it enough room to fuel top-line growth in the future.
The bear case for HubSpot
Similar to most other growth stocks in the technology sector, HubSpot stock is trading at a premium. Its forward price to 2022 sales multiple is 22.8x while its price to earnings multiple is also expensive at 324x.
Further, the company is still reporting a GAAP loss which stood at $24.6 million or $0.53 per share compared to a loss of $29.4 million or $0.67 per share in the year ago period. Further, an expanding market attracts new players which is a threat to HubSpot due to low barriers of entry.
So, should I buy HubSpot stock?
Despite valuation concerns, HubSpot should be on the radar of long-term growth investors as it is impossible to time the market. Instead, every correction in HUBS stock can be viewed as a buying opportunity in a company that grew its revenue by 53% year over year and customer base by 40% in its most recent quarter.
In the last month, HUBS stock has gained close to 13% as it announced the launch of HubSpot Payments. In order to drive the adoption of its latest product, HubSpot will waive fees for the initial $50,000 of ACH or automated clearing house transactions every month. The company has partnered with Stripe to launch this solution.
This payment vertical is expected to add another revenue stream for the company and should be a high-margin business. HubSpot should manage to convince a sizeable portion of its 121,000 customers to use the payments solution.
Lastly, HubSpot derives over 90% of its total sales via subscriptions which will allow it to generate steady revenue across business cycles.
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