Hubspot stock crashes amid transition from growth to value: now what?

Hubspot stock price plunged by over 20% today, August 5, after publishing its financial results, which showed that its growth continued in the second quarter of the year. HUBS slipped to $197, down sharply from last year’s high of $881, with its market capitalization moving from $42 billion to $10 billion today. 

Hubspot stock drops after earnings

Hubspot is a top player in the software company offering products that most small and medium-sized companies need. It offers solutions in marketing, sales, content, data, revenue, and agents. Also, it is a top competitor to companies like Salesforce and Microsoft in the CRM industry. 

The company has come under pressure in the past few months amid the rising concerns about SaaSPocalypse. This is a situation where investors believe that software companies will be disrupted by artificial intelligence tools. This explains why most software stocks have plunged this year.

Hubspot stock dropped sharply today after the company published its quarterly results. Its revenue jumped by 19.8% in the second quarter to $912 million, with its subscription figure rising by 20% to $894 million.

The results showed that its gross profit margin eased a bit to 84%, while its operating profit soared to $185 million. 

The main reason why the stock is falling is that the company’s guidance was short of expectations. It now expects that its revenue will be between $924 million and $925 million, representing a 14.2% annual growth. Its operating profit is expected to jump to between $187 million and $188 million.

These numbers mean that Hubspot is slowly transitioning from a growth company to a value one. This explains why the management has started to repurchase its stock. It will now repurchase shares worth $1 billion in the next 24 months. 

Share repurchases help companies reduce their outstanding shares, which, in turn, leads to higher earnings per share. 

In Hubspot’s case, the repurchases are a reflection that the company has become highly undervalued. Data shows that its forward price-to-earnings ratio has dropped to 19, much lower than the five-year average of 116. 

Analysts have lowered their targets after the earnings. Nick Altmann, a BTIG analyst, reduced the target from $300 to $250, while Parker Lane, a Stifel analyst slashed from $275 to $200. Also, KeyCorp’s Jackson Ader cut the target from $290 to $285.

READ MORE: Google is no longer interested in buying HubSpot

Technicals suggest the HUBS stock has more downside to go

HUBS stock chart | Source: TradingView

Hubspot’s cheap valuation might lead to more demand by bargain hunters. However, technicals suggest that it has become a value trap that will continue falling in the near future. 

The stock has dropped below the important support level of $245, its lowest level in October 2022. Moving below that level confirmed the bearish breakout.

At the same time, the stock has remained below all moving averages and is in the process of forming a bearish flag pattern. This pattern is made up of a vertical line and a horizontal channel.

Therefore, the most likely scenario is where it makes a bearish breakout, potentially to the key support level of $150. This view will be confirmed if it drops bdelow the key support level of $168.