J.P. Morgan: Stop Buying HubSpot

In a report published Wednesday, JP Morgan analyst Mark R Murphy downgraded the rating on HubSpot Inc HUBS from Overweight to Neutral, while maintaining the price target at $45.

Analyst Mark Murphy said that the current rating reflected the following:

1. The company’s shares had surged 58 percent year-to-date, as compared to a 2 percent rise in the S&P 500. With this appreciation, the shares had moved above the price target.
2. At the current valuation “of 9.1x EV/CY16E revenue,” the company’s shares were trading at a premium to the peer group average of 6.5x. Murphy believes that this premium was “a fair reflection of HubSpot’s superior growth trajectory” of 58 percent in the most recent quarter.

“Historically, SMB-oriented software companies such as HubSpot incur higher churn rates and embed less takeout premium than Enterprise-oriented businesses,” the JP Morgan report stated.

Murphy explained that the downgrade was based primarily on valuation and was not related to “business conditions or the recent management shake-up.” Moreover, HubSpot was expected to report solid earnings, and the estimates could be raised.