The rising demand for cloud-based applications that enable remote working and boost the efficiency of corporate operations is propelling the growth of the software-as-a-service (SaaS) industry. In addition, because many companies have delayed their return to office plans amid the resurgence of COVID-19 cases, companies in this space should continue to thrive.

Rapid changes amid dynamic market conditions that include economic uncertainty, competitive rivalry, changing regulations, and technological advancements, are projected to benefit the SaaS market. Indeed, the global SaaS market is expected to reach $253 billion by 2023, representing a 10% CAGR.

Therefore, Wall Street analysts expect fundamentally sound SaaS stocks HubSpot Inc. (HUBS) and GitLab Inc. (GTLB) to rally more than 80% in price in the near term based on their solid growth attributes.

HubSpot Inc. (HUBS)

HUBS in Cambridge, Mass., offers cloud-based customer relationship management (CRM) software to companies in the Americas, Europe, and the Asia Pacific. It also provides professional and phone, email, and chat-based services.

In October, HUBS introduced new enterprise-grade capabilities and improvements at INBOUND 2021 to help organizations better coordinate their data, channels, and teams and seamlessly adapt to each stage of development. HUBS’ latest enhancements provide users with more advanced customization and controls, including increased reporting capabilities and a new enterprise tier of its Operations Hub product.

For the third quarter, ended Sept. 30, 2021, HUBS’ revenue increased 48.5% from its year-ago value to $339.19 million. Its total customers grew 34% year-over-year to 128,144. And its total average subscription revenue per customer rose 9% from the year-ago value to $10,536.

A $1.78 consensus EPS estimate for its fiscal 2021 represents a 34.8% increase year-over-year. HUBS’ revenue is expected to increase 29% in its fiscal 2022. The stock has declined 42.7% in price over the past three months and 32.2% over the past month.

Of 20 Wall Street analysts that have provided ratings for the stock, 16 rated it Buy, and four rated it a Hold. Closing yesterday’s trading session at $452.96, the $845.94 average analyst price target represents a potential 86.8% upside.

GitLab Inc. (GTLB)

San Francisco-based GTLB, through its subsidiaries, creates software for the software development lifecycle. It runs the SaaS-based GitLab.com, which allows users to develop, review, and deploy code. In addition, it provides consulting, training seminars, development, and other support services.

Last month, GTLB, the provider of The DevOps Platform, received ISO/IEC 27001:2013 certification from Schellman and Company, LLC. GTLB was certified on its first attempt, indicating the maturity and efficacy of its information security operation.

Also, last month, GTLB acquired Opstrace, Inc., a developer of open-source observability software. With this acquisition, GTLB continues to define the future of DevOps platforms and expects to be the first to include an integrated open-source observability solution within a single application with one user interface, a unified data store, and security embedded within the DevOps lifecycle.

GTLB’s revenue increased 58.5% year-over-year to $66.80 million for its third fiscal quarter ended Oct. 31, 2021. Its gross profit grew 58.9% from its year-ago value to $59.61 million. And the company’s cash and cash equivalents came in at $824.71 million, representing a 191.6% increase for the nine months that ended Oct. 31, 2021.

The company’s EPS is expected to grow at the rate of 25.7% per annum over the next five years. Analysts expect GTLB’s revenue to increase 37% year-over-year to $333.97 million in its fiscal 2023. The stock has declined 44.9% in price over the past three months and 30.7% over the past month.

Of 10 analysts that have provided ratings for the stock, seven rated it Buy, and three rated it a Hold. The $121.33 consensus price target represents a 104.3% potential gain from its last closing price of $59.38.

HUBS shares were trading at $467.82 per share on Thursday morning, up $14.86 (+3.28%). Year-to-date, HUBS has declined -29.03%, versus a -4.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article