Does HubSpot (NYSE:HUBS) Have A Healthy Balance Sheet?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that HubSpot, Inc. (NYSE:HUBS) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for HubSpot
What Is HubSpot's Net Debt?
As you can see below, at the end of March 2022, HubSpot had US$472.1m of debt, up from US$444.4m a year ago. Click the image for more detail. But it also has US$1.23b in cash to offset that, meaning it has US$762.8m net cash.
How Strong Is HubSpot's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that HubSpot had liabilities of US$662.0m due within 12 months and liabilities of US$757.5m due beyond that. Offsetting this, it had US$1.23b in cash and US$152.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$31.9m.
Having regard to HubSpot's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$17.7b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, HubSpot also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine HubSpot's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, HubSpot reported revenue of US$1.4b, which is a gain of 47%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is HubSpot?
Although HubSpot had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$188m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that HubSpot is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for HubSpot you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.
