What happened

Shares of HubSpot (HUBS -0.80%) rallied today, up 4.8% as of 12:40 p.m. ET, even though the broader technology sector as exemplified in the Nasdaq Composite was down more than 1% at that time.

The reason? It's earnings season, and HubSpot just posted one of its customary beats relative to analyst expectations.

So what

In the second quarter, HubSpot posted 35.7% revenue growth, as well as non-GAAP (adjusted) earnings per share of $0.44, with both figures beating analyst expectations. HubSpot's customer count grew 25% relative to last year, while the average annual subscription paid grew 10%, perhaps an indication of either pricing power or the ability to upsell customers to new modules.

Even though we are in a difficult environment for small and medium-sized businesses, management also projected slight sequential growth for the next quarter, despite an 8 percentage-point headwind due to unfavorable foreign exchange. CEO Yamini Rangan remarked, "Small and medium businesses are looking to consolidate their technology and boost efficiencies in today's environment and HubSpot's connected CRM platform can help them do both."

Now what

HubSpot had been a darling of the pandemic-era boom in software, as its suite of digital marketing applications for small and medium-sized businesses benefited from the stay-at-home environment. That caused its stock to skyrocket to $866 per share last year, before the tech crash plunged the stock to around $370 today, even after a nice bounce off the 2022 low of $257.

Investors have been trying to find a bottom in unprofitable growth stocks, which is quite difficult since many, HubSpot included, don't produce real GAAP profits, when factoring in stock-based compensation. In an environment in which inflation and long-term interest rates are moving quickly, big moves in long-term rates can greatly affect the intrinsic value of future profits.

So HubSpot's stock has been quite volatile, even though its business has been solid and consistently topping expectations, even during the economic reopening. However, with today's red-hot jobs numbers coming in above expectations, the Federal Reserve may have to keep raising interest rates to cool inflation. That could put growth stocks under more pressure, especially after their recent rally.

Currently, HubSpot trades around 10.5 times this year's revenue guidance, which seems quite cheap relative to the recent past for a software company growing north of 35%; however, remember that we have been in a low interest rate environment for the past 15 years, and that type of valuation used to only be given to the cream of the crop in the prior, higher-rate period.

As recent earnings show, HubSpot is an excellently run company that is innovating at a rapid clip with loyal customers. The price one wants to pay for that growth? That remains an open question. Still, HubSpot is at least worth putting on your watch list, given its operational fortitude through all kinds of environments.