HubSpot’s stock price has taken a beating over the past six months, shedding 46.8% of its value and falling to $197.58 per share. This might have investors contemplating their next move.
Given the weaker price action, is now a good time to buy HUBS? Find out in our full research report, it’s free.
Why Does HubSpot Spark Debate?
Born from the idea that traditional interruptive marketing was becoming less effective, HubSpot (NYSE: HUBS) provides an integrated platform that helps businesses attract, engage, and manage customer relationships through marketing, sales, service, and content management tools.
Two Things to Like:
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
HubSpot’s billings punched in at $912.3 million in Q1, and over the last four quarters, its year-on-year growth averaged 22.3%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Elite Gross Margin Powers Best-In-Class Business Model
Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
HubSpot’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 83.7% gross margin over the last year. Said differently, roughly $83.66 was left to spend on selling, marketing, and R&D for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. HubSpot has seen gross margins decline by 0.9 percentage points over the last 2 years, which is poor compared to software peers.
One Reason to Be Careful:
Operating Margin Rising, Profits Up
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.
Analyzing the trend in its profitability, HubSpot’s operating margin rose by 4.5 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 1.9%.
Final Judgment
HubSpot’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 2.8× forward price-to-sales (or $197.58 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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