Is the market fickle, or are we just demanding too much of hype-growth stocks? Lately it would seem that no matter what these high octane companies do, it isn't enough. And woe be the company that actually misses a line or two even if, on the surface, all looks very strong.
Consider HubSpot (HUBS) , a cloud-based digital marketing company that is one of the stellar performers of the era. The stock stood at $64 two years ago and going into the quarter last night, it was at $151, a great gain. But three months ago the stock was trading north of $200, so even as it is still up 13% for the year, it's given up a huge gain.
Last night it reported a quarter that pretty much beat on every single line, including what you would normally think would be a real scorcher: 32 cents per share in profit vs. 24 cents. The company raised both its forecast for earnings and for sales. It would have been picture perfect just even three months ago. It gave you 33% revenue growth and 31% customer growth.
But in the call the company's CEO, Brian Halligan, admitted to disappointment: "I feel like we had a really solid quarter here; 33% growth was really solid. It could have been higher, and the reason it wasn't higher wasn't macro. I think the reason it wasn't higher was more execution on our side earlier in the year. Hiring, we fell behind hiring and that's rippling through."
It gets worse, as Halligan goes on to say, "The other thing is just we had an outage back in March and that outage -- that was kind of a big deal. Like we talked to a lot of customers about it, it really impacted them, and we take our responsibility very seriously."
Now I bet you have never heard of HubSpot. It's the province of the high growth hedge and mutual funds, the ones who can handle companies that are selling at 100-times earnings.
But these are the same shareholders who are quick to dump a stock that has hair on it, and an outage and a hiring issue amounts to real hair, long hair. This is a company that helps companies get more clients and expand. It is a company that has to improve on its hiring and the best way to do that in a market that's rapacious in its needs for bodies, is to have an up stock.
That's certainly no longer the case.
Now I have been saving something here -- burying the lead so to speak -- because I wanted to use Hubspot as a metaphor. This is a company that like so many other companies exists around the small- and medium-sized businesses, helping them grow. If you go to HubSpot's website, for example, it shows a spokesperson for the Rock & Roll Hall of Fame saying how much HubSpot has helped bring in visitors and please them.
But here's my issue: I have a dozen HubSpots in my brain, a dozen fast growing companies with momentum stocks that have $500 million in sales, that have a $6 billion market cap, that are cloud-based marketing businesses as HubSpot is. I am sure HubSpot does a great job if I hire them, but they had an outage and they may not have enough sales people to cover me.
Who needs this one in their portfolio? I know I don't want to own it after listening to that call. Plus, in fairness, it has a terrible chart and many momentum players are chartists, too.
It's just too easy for momentum traders to sell this one and go buy, say, competitor Adobe (ADBE) , which just told you Monday it is doing well with a buyback and a much lower price-to-earnings multiple with a proven management. You can swap into Salesforce.com (CRM) , or ZenDesk (ZEN) or a RingCentral (RNG) or a Five9 (FIVN) , which just reported a terrific quarter. Yes, these are very different companies with very different strategies, but it doesn't matter as they might as well be the same stock.
It's the plethora that's the real killer. We have a shortage of great manufacturing companies, especially ex-aerospace because of Boeing (BA) and ex-auto because of a sales plateau. We can buy a drug stock or a food stock with a fine yield; those are scarce, too.
But HubSpot? After that quarter, who needs it? Reluctantly, I have to answer as a company, to many small- and medium-size enterprises, but as a stock, no one.