Is HubSpot (HUBS) Undervalued Following Its ESOP Shelf Registration And Stock Slide?

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ESOP shelf registration refocuses attention on HubSpot stock

HubSpot (HUBS) has filed a US$419.773 million shelf registration for 2,300,000 common shares tied to its employee stock ownership plans, putting fresh attention on the stock after a sharp price decline.

See our latest analysis for HubSpot.

Against that backdrop, HubSpot’s recent 4.1% 1 day and 7.2% 7 day share price returns hint at short term buying interest, although the share price is still down 46.1% year to date and the 1 year total shareholder return has declined 62.8%. This indicates that longer term momentum has been weak despite index additions and product updates.

If you are weighing HubSpot’s recent swings and want to see what else is moving in high growth software, it may be worth scanning 32 AI small caps.

HubSpot now trades at US$205.95, well below both its analyst price target of US$275.72 and one intrinsic value estimate that implies a very large discount. So where does a reasonable fair value range actually sit after this sell off?

Most Popular Narrative: 37.5% Undervalued

At a last close of $205.95, the most followed narrative on HubSpot points to a fair value of $329.51, framing the recent sell off as leaving a wide gap between price and that estimate.

HubSpot is a leading, product-led CRM platform for SMBs and mid-market companies that bundles marketing, sales, service, operations and commerce capabilities in an easy-to-adopt cloud suite. Its strong brand, inbound-marketing flywheel, partner ecosystem and user-friendly UX drive customer acquisition and retention, allowing HubSpot to capture higher lifetime value from expanding product adoption inside customers.

Read the complete narrative.

The fair value in this narrative leans heavily on revenue compounding, margin progression and what that could mean for future earnings power and return on equity. Want to see how those threads fit together and what has to happen for HubSpot to justify that gap?

Result: Fair Value of $329.51 (UNDERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, HubSpot’s thesis can be challenged if AI features become commoditized and pressure pricing, or if larger suite providers crowd out its push beyond core SMB customers.

Find out about the key risks to this HubSpot narrative.

Another view on HubSpot’s valuation

While the user narrative and our DCF work both point to HubSpot looking cheap, the picture changes when you look at the simple P/E. At 105.2x, HubSpot trades at more than 3x the US Software industry average of 29.3x and roughly double the peer average of 51.3x, and it also sits well above the 44.3x fair ratio that our model suggests the market could move toward over time. That kind of gap can cut both ways, so the key question is whether you think the underlying business can support such a premium if sentiment cools again.

For a closer look at how the earnings multiple stacks up across peers and that fair ratio, it is worth going through the valuation breakdown in detail, including our work on relative pricing, via See what the numbers say about this price — find out in our valuation breakdown..

Next Steps

With sentiment on HubSpot split between concern and optimism, use the data to move quickly and form your own balanced view by checking out the 3 key rewards and 1 important warning sign.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include HUBS.

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