• If you are wondering whether HubSpot shares are starting to look interesting at current levels, this article will walk through what the recent price and fundamentals might be telling you about value.
• The stock closed at US$263.60, with a 21.3% return over the last 7 days, while the 1 year return sits at a 62.7% decline. This may have some investors asking whether the recent rebound changes the risk and reward balance.
• Recent attention on HubSpot has focused on its position in marketing and sales software and how demand for its platform fits into broader software spending trends. This backdrop helps frame the contrast between the sharp 7 day gain and the weaker 30 day, year to date and multi year returns investors have experienced.
• HubSpot currently has a valuation score of 4/6, meaning it screens as undervalued on four of the six checks we use. Next we will walk through what different valuation approaches suggest about that score before finishing with an even better way to think about value.

Approach 1: HubSpot Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of a company’s future cash flows, then discounts them back to today’s dollars to arrive at an implied value per share. It is essentially asking what those future cash flows are worth right now.

For HubSpot, the model uses last twelve month Free Cash Flow of about $597.6 million as a starting point, then applies a 2 Stage Free Cash Flow to Equity approach. Analysts provide explicit forecasts for the next few years, and Simply Wall St extends those projections so that forecast Free Cash Flow reaches $2,219.75 million by 2030 and continues through a ten year path of projected cash flows.

After discounting those projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of about $868.15 per share. Compared with the recent share price of $263.60, this implies the stock trades at a 69.6% discount to that DCF estimate, which indicates that, on this model alone, HubSpot appears undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests HubSpot is undervalued by 69.6%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.

Approach 2: HubSpot Price vs Sales

For a growing software company, the P/S ratio is often a useful gauge because revenue is usually more stable than earnings and less affected by accounting choices. Investors tend to accept a higher P/S when they expect stronger growth or see lower risk, and a lower P/S when growth expectations or perceived risk are lower.

HubSpot currently trades on a P/S of 4.44x. That sits above the broader Software industry average of 3.35x, but below the peer group average of 7.89x. To go a step further, Simply Wall St calculates a proprietary “Fair Ratio” of 7.70x for HubSpot. This estimate reflects factors such as the company’s growth outlook, its industry, profit margins, market value and specific risks, rather than just a simple comparison with other software names.

Because the Fair Ratio is tailored to HubSpot’s profile, it can provide a clearer sense of what investors might typically pay for a business with similar characteristics. Comparing the Fair Ratio of 7.70x with the actual P/S of 4.44x indicates that HubSpot’s shares are trading below that implied level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your HubSpot Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, which are short, clear stories that link your view of HubSpot’s business to specific forecasts for revenue, earnings and margins. These are then rolled into a Fair Value you can compare with the current price, all inside the Community page where millions of investors share their views. For example, one HubSpot Narrative might lean closer to a Fair Value around US$375 based on revenue growing about 16.7% a year and profit margins near 7.9%. Another might sit nearer to US$735 with revenue growth around 18.0% and margins near 12.3%. As fresh news or earnings arrive these Narratives update automatically so you can see how your story and Fair Value move over time. This can help you decide whether HubSpot looks closer to a buy, a hold or a sell relative to its market price.

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.