IBD's special software industry group, which ranks third among 197 industries, is a hot commodity as investors flock to anything related with technology and artificial intelligence. HubSpot, the leading stock of the group, makes the IBD Big Cap 20 despite providing growth that is almost exclusively seen among smaller companies. This stock is definitely one to watch.
HubSpot is a cloud-based platform developed by HubSpot in Cambridge, Massachusetts. It helps businesses create processes for marketing, sales and customer service.
The software of the company is similar to Salesforce (CRM), however, its customers are primarily small and midsize companies as opposed to larger ones.
HubSpot Stock: Big Cap, Even Bigger Growth
HubSpot's growth has been astonishing, especially when you consider its market capitalization of $25 billion. After earning $2.91 per share in 2018, EPS is expected to rise to $4.84 by 2023, and to $6.07 by 2024.
The company's first quarter results indicate that it is on track to meet its targets. It reported an EPS ($1.20) and revenue of $5.01M, beating analyst estimates by 83 cents. Revenue and customers both increased by 27% from the previous year.
HubSpot shares have soared 75% in the past year due to strong results and growth projections. The valuation of HubSpot has been impacted by this: with a price-earnings of 150, HubSpot's shares are certainly overvalued.
It is only natural that a company with supersized growth would have a high market value. It also means that, even if HubSpot meets its lofty targets for growth, the stock may still fall if risk appetite in general declines.
In the worst case scenario, a recession around the world could lead to the company missing its growth targets and the share price plummeting.
Can AI advancements overshadow valuation concerns?
The rapid advances in artificial intelligence are driving growth in the software and tech sectors.
HubSpot software is expected to benefit most from AI advancements. These may give it more ways to help customers automate processes and increase efficiency.
The company's supporters can also point out that it has excelled in a macro-environment which is becoming increasingly difficult. It increased its full-year forecast last quarter while other software companies cut theirs to reflect weakness.
According to MarketSmith, 62% of mutual funds are owned by institutions.
HubSpot has a top composite and EPS rating of 99.
MarketSmith's pattern recognition shows that shares are forming a tight pattern over a period of three weeks with a buy point of 535.12.