Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as HubSpot Inc (NYSE:HUBS) with a market-capitalization of $2.56B, rarely draw their attention and few analysts cover them. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I recommend you look at the following hurdles to assess HUBS’s financial health. See our latest analysis for HUBS
Can HUBS service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. HUBS’s debt-to-equity ratio stands at 142.30%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, availability of cash may dry up, making it hard to operate.
Does HUBS’s liquid assets cover its short-term commitments?
A different measure of financial health is measured by its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. In order to measure liquidity, we must compare HUBS’s current assets with its upcoming liabilities. Our analysis shows that HUBS is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
HUBS’s ability to meet its short-term liabilities is an indication of financial strength. However, its high debt level indicates a certain degree of risk associated with debt obligations. Now that you know to keep debt in mind when putting together your investment thesis, I recommend you check out our latest free analysis report on HubSpot to see what other factors for HUBS you should consider.
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