HPQ

Quick Report on HP (HPQ)

We've been asking ourselves recently if the market has placed a fair valuation on HP. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.

HP Is Fairly Valued:

HP Inc. provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16. In contrast, HP has a trailing 12 month P/E ratio of 11.2 based on its earnings per share of $2.33.

There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.

One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.

HP's PEG ratio is -4.8, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.

EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:

2017-12-14 2018-12-13 2020-02-27 2020-12-10 2021-12-09 2022-12-06
Revenue (MM) $52,056 $58,472 $58,756 $56,639 $63,487 $62,983
Gross Margins 18.0% 18.0% 19.0% 18.0% 21.0% 20.0%
Operating Margins 7% 7% 7% 7% 9% 8%
Net Margins 5.0% 9.0% 5.0% 5.0% 10.0% 5.0%
Net Income (MM) $2,526 $5,327 $3,152 $2,844 $6,503 $3,203
Earnings Per Share $1.48 $3.26 $2.07 $2.0 $5.94 $3.05
EPS Growth n/a 120.27% -36.5% -3.38% 197.0% -48.65%
Diluted Shares (MM) 1,702 1,634 1,524 1,420 1,094 1,050
Free Cash Flow (MM) $4,010 $4,902 $5,325 $4,893 $6,991 $5,228
Capital Expenditures (MM) -$333 -$374 -$671 -$577 -$582 -$765
Net Current Assets (MM) -$14,003 -$13,874 -$14,483 -$16,261 -$18,090 -$21,704
Long Term Debt (MM) $6,747 $4,524 $4,780 $5,543 $6,386 $10,796
Net Debt / EBITDA 0.21 0.18 0.12 0.29 0.5 1.3

HP has weak revenue growth and a flat capital expenditure trend, weak operating margings with a stable trend, and irregular cash flows. We also note that the company has healthy leverage working in its favor. However, the firm suffers from slimmer gross margins than its peers and EPS growth achieved by reducing the number of outstanding shares.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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