• Wondering whether HubSpot at around US$243.72 is a bargain or a value trap? This article walks through what the current share price might be implying about the stock's worth.
• The stock has moved 9.9% over the last 7 days and 7.1% over the last 30 days, yet the return over the last year sits at a 63.1% decline and the year to date return is a 36.2% decline.
• Recent coverage has focused on HubSpot's position in marketing and sales software and how investors are reassessing growth stocks with similar profiles. This shift in sentiment helps frame why the stock's shorter term moves can look very different to its longer term returns.
• HubSpot currently holds a valuation score of 4/6, which means it screens as undervalued on four of six checks. Next up is a closer look at those valuation methods and an even better way to judge whether the current price stacks up. HubSpot scores just 4/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: HubSpot Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s value to estimate what the business might be worth right now.

For HubSpot, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is around $597.6 million. Analyst estimates and subsequent extrapolations by Simply Wall St point to projected free cash flow of $2.2b by 2030, with intermediate yearly projections between these points also used in the model.

Bringing all those projected cash flows back to today gives an estimated intrinsic value of about $884.97 per share. Compared with the recent share price of roughly $243.72, the DCF output suggests the stock trades at a 72.5% discount to this intrinsic estimate, which screens as significantly undervalued on this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests HubSpot is undervalued by 72.5%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: HubSpot Price vs Sales

For companies where investors focus on revenue growth and scalability, the P/S ratio is often a useful yardstick because it compares what the market is paying for each dollar of sales, regardless of the current profit level.

Expectations for growth and the level of risk usually shape what counts as a “normal” P/S multiple for a stock. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk can point to a lower one.

HubSpot currently trades on a P/S of 4.01x, compared with the Software industry average of about 3.74x and a peer average of 6.36x. Simply Wall St’s Fair Ratio framework goes a step further and estimates what a reasonable P/S multiple could be after factoring in HubSpot’s earnings growth profile, industry, profit margins, market value and company specific risks.

This Fair Ratio for HubSpot comes out at 7.46x, which is higher than the current 4.01x P/S multiple. That gap suggests the stock is screening as undervalued on this P/S based cross check.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your HubSpot Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives let you attach a clear story about HubSpot to the numbers by linking your view of its business drivers to a forecast for revenue, earnings and margins. This then flows through to a Fair Value that you can compare with the current price on Simply Wall St’s Community page, where millions of investors share Narratives that update automatically when new earnings or news arrive. You might align with a more optimistic HubSpot view that assumes around 18.0% annual revenue growth, a profit margin of 12.3% and a Fair Value of about US$735.17. Alternatively, you might prefer a more cautious view that assumes around 14.5% annual revenue growth, a profit margin of 4.5% and a Fair Value of about US$450.00. You can then decide for yourself how the price near US$243.72 fits with the story you find more convincing.

Do you think there's more to the story for HubSpot? Head over to our Community to see what others are saying!

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.