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Here's Why HubSpot (HUBS) is a Promising Portfolio Pick

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Shares of HubSpot, Inc. (HUBS - Free Report) have jumped 8% post-earnings release, driven by improved market demand across its portfolio on the back of a flexible business model and solid cash flow. Earnings estimates for the current fiscal year have increased 9.2% over the past year, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
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Growth Drivers

Headquartered in Cambridge, MA, HubSpot provides inbound marketing and sales application over the cloud. The software-as-a-service (SaaS) vendor helps businesses attract more customers through search engine optimization (SEO), social media, blogging, website content management, marketing automation, email, Customer Relationship Management (CRM), analytics and reporting.

HubSpot’s inbound marketing and sales applications are enabling businesses to easily reach, acquire and retain customers through traditional marketing tools like cold calls, print advertisements and email. The company’s strategic priority is to deliver a world-class front-office platform by investing in anchor hubs and innovating new emerging hubs. The company continues to expand its app ecosystem, with its integration catalog growing nearly 40% year over year.

HubSpot also remains focused on becoming a leading CRM platform provider in the near future. The core of HubSpot’s subscription-based cloud platform is its inbound database that captures user activity throughout the customer’s lifecycle. Subscribers of HubSpot’s SaaS applications use multiple channels like optimized search engine techniques, social media and targeted content through websites and blogs to fulfill customer needs. The platform's success is evident from the rapid growth in marketing customers. The growing adoption of inbound applications has helped develop the marketing agency partner network.

The company has significant scope in cross-selling its products to the existing customer base. The One HubSpot initiative is a key growth driver. In addition, HubSpot's App Marketplace offers a customer-centric solution by making it simple for companies to find and seamlessly connect the integrations to grow their businesses. As companies continue to prioritize a digital-first approach, it is likely to create more opportunities for developers to build new integrations that support every stage of the customer journey.

HubSpot has rolled out multiple updates to its Sales Hub product, including a low-priced Starter tier and improvement to its sales engagement tools to make them more affordable for growing sales teams. Moreover, the company has a sizeable customer base that uses its products for free. Given the growing effectiveness of its inbound applications and innovative product portfolio, we believe that many of these free customers will eventually choose to buy HubSpot pro products for both their marketing and sales functions. This presents a significant top-line growth opportunity for the company and will likely boost its margins.

HubSpot reported relatively healthy third-quarter 2022 results, with both the bottom line and the top line surpassing the respective Zacks Consensus Estimate, driven by strong product innovation and a deep understanding of its customers’ requirements.

It delivered a positive earnings surprise of 15.5%, on average, in the trailing four quarters. The stock has a long-term earnings growth expectation of 21.2%.

Other Key Picks

TESSCO Technologies Incorporated (TESS - Free Report) , sporting a Zacks Rank #1, delivered an earnings surprise of 126.1%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 44.3% since November 2021.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.

Harmonic Inc. (HLIT - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 79.3%, on average, in the trailing four quarters. Earnings estimates for Harmonic for the current year have moved up 48.6% since March 2021.

Harmonic provides video delivery software, products, system solutions, and services worldwide. With more than three decades of experience, it has revolutionized cable access networking via the industry's first virtualized cable access solution, enabling cable operators to more flexibly deploy gigabit internet service to consumers' homes and mobile devices.

AudioCodes Ltd. (AUDC - Free Report) , sporting a Zacks Rank #1, is likely to benefit from the secular tailwinds related to IP-based communications. Incorporated in 1992 and headquartered in Lod, Israel, it offers advanced communications software, products and productivity solutions for the digital workplace. It has a long-term earnings growth expectation of 9%.

AudioCodes aims to leverage its long-term partnership with Microsoft to further strengthen its market position. It is also likely to benefit from its continued focus on high-margin businesses.

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