Freshworks has gotten torched over the last six months - since December 2025, its stock price has dropped 26.1% to $9.30 per share. This might have investors contemplating their next move.
Given the weaker price action, is this a buying opportunity for FRSH? Find out in our full research report, it’s free.
Why Does FRSH Stock Spark Debate?
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ: FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Freshworks’s 25.8% annualized revenue growth over the last five years was solid. Its growth surpassed the average software company and shows its offerings resonate with customers.
2. Elite Gross Margin Powers Best-In-Class Business Model
Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
Freshworks’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 85% gross margin over the last year. Said differently, roughly $84.97 was left to spend on selling, marketing, and R&D for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Freshworks has seen gross margins improve by 1.6 percentage points over the last 2 years, which is solid in the software space.
One Reason to Be Careful:
Customer Churn Hurts Long-Term Outlook
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Freshworks’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 106% in Q1. This means Freshworks would’ve grown its revenue by 6% even if it didn’t win any new customers over the last 12 months.
Freshworks has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.
Final Judgment
Freshworks’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 2.7× forward price-to-sales (or $9.30 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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