By Is HP Inc. (NYSE: HPQ) a tech winner amid the gloom?
This TabStocks Article takes an in-depth look at HP Inc. to find out if this tech company is worth investing in.
Stock Ticker
HPQ (HPQ)
Stock Name and Trading Stock Exchange Platform
HP Inc. (formerly Hewlett-Packard) – NYSE (NYSE: HPQ)
The Stock Sector
HP is involved in developing and providing personal computers, other access supplies, imaging and printing solutions, and other technology products.
HP operates in over 170 countries worldwide and is the world’s 2nd largest personal computers vendor by unit sales.
The company’s three operating segments are; Personal computers containing notebooks, desktops, and workstations, its printing segment which contains supplies consumer hardware, and commercial hardware, and the corporate investments segments.
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In 2015 the company Hewlett-Packard was split into HP and Hewlett-Packard enterprises. The company was founded by William Hewlett and David Packard in 1939 and is headquartered in Palo Alto, California.
Recent Most Important News
HP has been affected by the ripple effect of the crash in tech stocks. It is a flourishing business and is doing remarkably well in its operations.
However, the market is a game of irrationality and human emotion, as such this unflawed company has taken a hit with its stock trading lower in the past year.
It has underperformed the market this week compared to its peers, rising only by a tiny percentile.
The company’s President, Director, and CEO, Enrique Lores sold a substantial amount of shares at the start of the month equating to $1.1M. He still retains $18M worth of shares.
Plantronics Inc (NYSE: $POLY), an electronics company in the US announced last month that its shareholders approved a proposed merger with HP.
HP previously agreed to purchase Poly for a total enterprise value of $3.3B, as per the terms of the deal in March this year.
Warren Buffet’s Berkshire Hathaway, announced an 11.5% stake in HP as of April this year. The deal is estimated to have cost about $4.2B, reinforcing HP’s long-term value.
The company surged as high as 10% following the news and has received attention from the market, which strictly watches the moves of Berkshire.
Investment firms seem to have a knack for the company, with CWM LLC recently buying a good number of shares of the company.
HP announced its earnings in late May, startling investors with its stellar performance.
Current Position of HP
HP is a remarkable tech company that has very strong fundamentals. HP is now valued at a market capitalization of $32.47B.
The company has a long history of operation for over 70 years. It is a classic Silicon Valley tale started in a garage (considered Silicon Valley’s birthplace) by two Stanford students.
HP scaled from a tech giant and rose to great heights during the dot com bubble, it has since been on a downtrend since then.
PC demand has skyrocketed in the past decade and the company is at the helm of the sector. It lost its dominant position to Lenovo in 2015 following a lot of internal issues.
The company has been plagued with a series of setbacks including Failed leadership, Employee dissatisfaction, Scandalous events, and a general innovation crisis.
The pandemic was a blessing to the company and it experienced increased sales owing to the work-from-home model.
Hybrid work might keep up demand for personal computers in the coming years, which is on the decline due to the preference for mobile phones.
The PC industry suffered one of its worst downtrends in nine years as shipments dropped by 12.6% from the previous year.
The company is hoping to leverage its commercial client base, which is expected to grow, together with its Device as a service (DAAS) growth model, and penetrate the gaming and premium products services.
CEO Enrique Lores sees is focused to bolster these key areas above to spur growth in the market. He categorically stated that:
We are starting a new chapter and the key elements of the chapter are our ambition to advance our leadership in personal systems and print, and the opportunity that we have to disrupt some key industries.
HP is therefore a strategically positioned company that is a potent disruptor. It has been overlooked over the years and even considered boring to an extent.
This is the exact type of investment that attracts the Oracle of Omaha and sure enough, he made an entry into the company which brought it to the attention of the masses.
Buffet has reiterated that the best asset is a cheap one that few in the market consider. He has stated the mistake of omission, which is not capitalizing on cheap opportunities, is worse than the mistake of commission.
HP is precisely this and a treasure to have in a recessionary market. As a user on yahoo finance explains:
The magic formula is to find stocks with rising earnings and increasing dividends and don’t overpay for them.
HP is remarkable financially and compensates its shareholders generously. It is well managed and actions such as its buybacks, with a record -36.6% in shares outstanding, boost investor confidence.
HP is notch above competitors because of its strong brand, R&D, and distribution
Is HP Inc. (NYSE: HPQ) a tech winner amid the gloom? The company runs an excellent business and is in a very good position in hindsight.
HP Stock Price Chart
HP stock price chart
$HPQ is trading at $31.40 at the close of the market on June 11th, 2022. It is down by -2.21%. The company is trading at a day range of $31.28 -$31.83.
The stock has receded from its highs at the beginning of the year. It has traded at a yearly high of $41.47 and a yearly low of $26.11.
The average volume of shares traded is 10.91M. The stock has a P/E ratio of 5.63, which is very low, indicating the stock is moderately priced.
The tech markets are up in the past week and the stock ticked higher by +1.59% in the period. It is down by -6.99% in the past month and -19.47% in the past six months.
It has however done well in the past year and is up by 7.50% over the year. HP has delivered a 140% return in the past five years, thus a great timeless investment.
Is HP Inc. (NYSE: HPQ) a tech winner amid the gloom?
The stock price is justified and the company certainly delivers more. The stock price is still at the same levels it was in the year 2000 when operations were not equivalent to the present day.
Sentiment on HPQ
The company is believed to be at its fair value at the current price. It is thus a good investment from a long-term view.
The stock has mixed reviews but experts generally agree that it is a solid growth company that could deliver to its investors.
HP is not a big advertiser due to strong demand for their products and this has left some confusing it for ‘dead’ compared to upcoming producers.
The company is pleasant to its investors, especially in light of economic uncertainty, high-income earners outperform the market.
HP is considered a safe investment by the majority and only a few are pessimistic about it.
Pros of HP based on Investors Outlook
- Cheap Valuation – The company is undervalued compared to large players like Apple, Microsoft, and others. It is cheap too and thus very attractive to investors.
- Strong balance sheet – HP makes huge income and has a lot of free cash flow with considerable debt. Its financials are strong and pleasing to shareholders.
- Solid returns – The company pays remarkable dividends to stakeholders and the stock has performed well long-term. Additionally, it is repurchasing shares which increases investor equity in the company.
- Long History – HP is one of the companies that ushered in the tech era and has seen the market cycles. It has a wealth of experience and favorable investor relations that put it in good stead even amid headwinds.
Cons of the HP based on Investor Outlook
- Lack of Appeal – Naysayers believe that Buffet’s bet was a bad one as the computer industry is not his cup of tea. Some believe that HP is not ‘hot’ and therefore no compulsive need by customers to purchase their products.
- No Moat – Some believe that the company has no competitive advantage over its peers in the same sector. The stock remains on top of the industry but questions arise on how long it can sustain this.
Profits for HP
HPQ reported its Q2 earnings on 31st May 2022. The company is astoundingly profitable and beat the analysts’ EPS estimates by 2.77%.
Revenue for the company rose by +3.86% posted at $16.49B. Operating expe4nse went down by -4.18% and was recorded at $1.90B.
The net income sadly decreased by 18.57% due to lower operating margins and lower unit sales resulting from supply chain headwinds.
The net profit margin was down by -21.6%, registered at 6.06%. EPS however rose by a solid +16.13%, coming in at 1.08.
The company has utilized its free cash flow in the past year for various activities like acquisitions, buybacks, dividend payout, and internal reinvestment.
The net change in cash is still at a remarkable $1.08B despite this, exploding by +247% over the year.
Cash and short-term investments increased by +30% yearly, recorded at $4.48B.
Its total assets were up by +15.495 valued at $39.90B. The company delivered an incredible 49.76% return on invested capital.
HP rocks in financial performance and is keen to grow this further. Concerns have arisen about whether they can maintain these levels in the future.
The company is positive that it can continue to post amazing performance. It is recession-proof and the CEO validated this saying:
As we were expecting, we saw some slowdown in consumer activity. But nothing tells us it’s going to be a major slowdown coming forward.
Pros for Investing in HP based on the General Outlook
- Excellent Management – The current management is very competent and focused on driving growth for its investors. The CEO is a visionary who looks to ensure the company not only survives but thrives in the future. This is a top Buffet criterion.
- Solid demand – The company proved it can deliver even with economic shocks, rising higher amidst supply chain disruptions.
- Prospective stock price – The stock trades at 9x forward earnings with huge potential upsides. This stock has a large growth capacity long-term and is a major reason why Berkshire made an entry.
- Remarkable Cash flow – Cash flow has been high and has risen sharply over the decade. This cash-rich position enables it to leverage opportunities even in bad markets.
Cons for Investing in HP based on the General Outlook
- Plummeting Tech stocks – Investors are fleeing tech stocks with the current market. HP is likely to be affected but its underlying business will do well.
- Panic Sell-off – Many investors are buying the stock due to the involvement of Berkshire. If prices rise many will be triggered to sell or if Berkshire exits the stock, the stock could collapse with a lot of downside risk.
Growth Likelihood and Potential for HP
HP runs one of the best businesses and is globally acknowledged as a leader in its space. Doubts about its appeal to customers are not accurate, since it mostly considers the US.
The company resonates with millions globally and especially in emerging countries as its products are affordable, user-friendly, and accessible.
Moreover, their plans to integrate into technology services are very promising and they have both the channels and capability to disrupt the niche.
It is undoubtedly going to be around in the next decade and a couple of generations to come if they can stay on top of the game.
Is HP Inc. (NYSE: HPQ) a tech winner amid the gloom?
HP is a future winner that will stand the test of time, which is why it has the attention of smart money.
It is rock solid and will withstand turmoil in the economy. Technical indicators are neutral as of now, owing to the unsteady markets.
This stock has been a great return to investors and will more likely sustain the momentum.
Analysts rank the stock as a buy, with a bit of skepticism about the overall tech sector. Its fundamental business is the gem that economists see as leverage in the coming days.
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