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Why HubSpot Stock Fell 18% in December

By Demitri Kalogeropoulos – Jan 4, 2022 at 10:04AM

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The stock stumbled as investors took some of their 2021 profits off the table.

What happened

HubSpot (HUBS 2.83%) shareholders lost ground to the market last month, with the stock falling 18% compared to a 4% gain by the broad S&P 500 index, according to data provided by S&P Global Market Intelligence. That decline wasn't enough to send the stock lower for the year, though: The enterprise software specialist more than doubled the S&P's 500 27% increase for 2021 overall.

December's slump came as some investors moved away from high growth stocks, like HubSpot, which had rallied earlier in the year.

An employee talks with a customer using a headset.

Image source: Getty Images.

So what

HubSpot actually rose early in the month along with some of its tech peers. Management participated in a technology conference, where they expressed confidence in their long-term growth vision. The company said it hopes to grow sales by 30% or more annually as it pushes into more aspects of enterprise services and convinces more of its customers to widen their use of its services. Revenue in the most recent quarter was up 49% to $339 million.

The company lost money in the third quarter, but its bottom line is trending in the right direction. Its operating losses amounted to 4.4% of sales in the period, compared to 6.8% of sales a year earlier.

Now what

HubSpot's status as a growth stock makes it vulnerable to short-term declines if investors continue to cycle out of that asset category. But shareholder returns will ultimately be powered by the company's success at expanding its platform and its customer base.

On that score, investors can look for the company to report that its sales rose to as much as $358 million in the fourth quarter, which would amount to a year-over-year increase of more than 40%. Wall Street pros are also expecting to hear that the company generated solid profits in Q4, with earnings improving to $0.53 per share compared to $0.40 per share in the prior-year period. The company is scheduled to report its Q4 results in mid-February.

Looking further out, HubSpot aims to boost its profit margins to between 20% and 25% over the next few years, which would be roughly double its 2021 margin. Combined with market-beating sales growth, such an earnings spike should support solid returns for shareholders.

The stock would likely outpace the wider market under that optimistic scenario, but investors should brace for more share price volatility ahead of (and immediately after) HubSpot's upcoming earnings report.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns and recommends HubSpot. The Motley Fool has a disclosure policy.

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