HP Stock in Brief

Today we're going to take a closer look at large-cap Technology company HP, whose shares are currently trading at $29.52. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!

HP Is Overvalued:

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 35.0. In contrast, HP has a trailing 12 month P/E ratio of 9.1 based on its earnings per share of $3.26.

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.

When we do this for HP, we obtain a PEG ratio of 1.11, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companys with excellent share performance have maintained much higher PEG ratios.

As always, a quantitave approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.

Shareholders Are Confronted With a Declining EPS Growth Trend:

2018 2019 2020 2021 2022 2023
Revenue (MM) $58,472 $58,756 $56,638 $63,460 $62,910 $54,675
Revenue Growth n/a 0.49% -3.6% 12.04% -0.87% -13.09%
Gross Margins 7% 7% 6% 8% 7% 6%
Operating Margins 7% 7% 6% 12% 7% 6%
Net Margins 9% 5% 5% 10% 5% 4%
Net Income (MM) $5,327 $3,152 $2,815 $6,541 $3,132 $2,266
Net Interest Expense (MM) -$818 -$1,354 -$231 $2,209 -$235 -$451
Depreciation & Amort. (MM) $528 $744 $789 $785 $780 $847
Earnings Per Share $3.26 $2.07 $1.98 $5.36 $2.98 $2.31
EPS Growth n/a -36.5% -4.35% 170.71% -44.4% -22.48%
Diluted Shares (MM) 1,634 1,524 1,420 1,220 1,050 855
Free Cash Flow (MM) $3,982 $3,983 $3,736 $5,827 $3,672 $2,897
Capital Expenditures (MM) $546 $671 $580 $582 $791 $603
Current Ratio 0.85 0.8 0.79 0.76 0.75 0.69
Long Term Debt (MM) $4,524 $4,780 $5,543 $6,386 $10,796 $9,236
Net Debt / EBITDA 0.19 0.13 0.32 0.38 1.47 1.99

HP has slimmer gross margins than its peers, weak operating margins with a stable trend, and declining EPS growth. On the other hand, the company has healthy leverage working in its favor. Furthermore, HP has weak revenue growth and a flat capital expenditure trend and irregular cash flows.

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.