HubSpot (NYSE:HUBS) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 note that HubSpot, Inc. (NYSE:HUBS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for HubSpot

What Is HubSpot's Net Debt?

The chart below, which you can click on for greater detail, shows that HubSpot had US$457.2m in debt in June 2024; about the same as the year before. But on the other hand it also has US$1.74b in cash, leading to a US$1.28b net cash position.

How Healthy Is HubSpot's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HubSpot had liabilities of US$1.44b due within 12 months and liabilities of US$317.9m due beyond that. Offsetting these obligations, it had cash of US$1.74b as well as receivables valued at US$269.9m due within 12 months. So it can boast US$250.5m more liquid assets than total liabilities.

This state of affairs indicates that HubSpot's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$27.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that HubSpot has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if HubSpot can strengthen its balance sheet over time. 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$2.4b, which is a gain of 23%, 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?

While HubSpot lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$327m. 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. We think its revenue growth of 23% is a good sign. We'd see further strong growth as an optimistic indication. 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. For instance, we've identified 1 warning sign for HubSpot that 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.