On Thursday, Piper Sandler adjusted its stance on HubSpot Inc (NYSE:NYSE:HUBS), downgrading the stock from Overweight to Neutral despite increasing the price target to $640 from $570. The firm acknowledged HubSpot's strong third-quarter performance, which saw a 3.6% top-line beat compared to projections, driven by a 20% growth in subscription revenue. HubSpot's ability to navigate through a tough external environment and potential positive outcomes from recent packaging and pricing changes were also noted.
The company's operating profits surged by 36% year-over-year, with operating margin climbing to 18.7% from 17.2% in the previous quarter. This improvement was partly due to a one-time benefit of $7 million. Based on these robust results and a stable outlook, Piper Sandler raised its price target, reflecting higher anticipated revenue and earnings per share for the current and following year.
However, HubSpot's stock has seen a significant rise in value, increasing by 33% over the past three months, outperforming the S&P 500's 13% gain during the same period. After the market closed, the stock added another 6% in value. Given these increases, Piper Sandler now views the stock as fairly valued at 9.5 times enterprise value to sales (EV/S) and 50 times enterprise value to free cash flow (EV/FCF) based on calendar year 2026 estimates.
The firm concluded that with the stock's current valuation, the risk-reward balance above the $640 price target appears even, prompting the downgrade to Neutral.
In other recent news, HubSpot Inc. reported robust third-quarter results, surpassing analyst expectations. The company posted adjusted earnings per share of $2.18, a notable increase over the consensus estimate of $1.91. Revenue was reported at $669.7 million, a 20% year-on-year increase, exceeding analysts' projections of $646.95 million.
The company's guidance for the fourth quarter also exceeded expectations. HubSpot forecasts an adjusted EPS of $2.18-$2.20, in line with the consensus, and revenue between $672 million and $674 million, surpassing the anticipated $669.5 million.
In other developments, the company reported a 23% increase in customers from the same period last year, totaling 238,128. However, average subscription revenue per customer saw a slight dip of 2% year-on-year. HubSpot's non-GAAP operating margin expanded to 18.7% from 16.5%, indicating improved profitability alongside strong revenue growth. These are among the recent developments for the company.
InvestingPro Insights
Recent data from InvestingPro adds depth to Piper Sandler's analysis of HubSpot Inc (NYSE:HUBS). The company's market capitalization stands at $30.7 billion, reflecting its significant presence in the software industry. HubSpot's impressive gross profit margin of 84.66% for the last twelve months as of Q3 2024 underscores its operational efficiency, aligning with the strong performance noted in the article.
InvestingPro Tips highlight that HubSpot's net income is expected to grow this year, and analysts predict the company will be profitable. This outlook supports Piper Sandler's decision to raise the price target despite the downgrade. The stock's strong returns over the last month (14.5%) and three months (29.75%) corroborate the article's mention of HubSpot outperforming the S&P 500.
However, investors should note that HubSpot is trading at a high revenue valuation multiple, with a P/E ratio of -826.27, suggesting the stock may be priced for high growth expectations. This valuation metric aligns with Piper Sandler's view that the stock is now fairly valued.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for HubSpot, providing a broader perspective on the company's financial health and market position.
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