Hewlett Packard, now known as HP Inc (NYSE:HPQ), is a prominent player in the PC and printing markets. Since its split from Hewlett Packard Enterprise in 2015, HP has focused on these areas, targeting both the commercial and consumer markets. With a diverse and global customer base, HP outsources its manufacturing and heavily relies on channel partners for sales and marketing. In this article, we will delve into HP's financial results and analyze its valuation.
A Snapshot of HP Inc (NYSE:HPQ)
As of now, HP's stock price stands at $214, with a market capitalization of $270 billion. When compared to the GF Value of $305, HP appears to be modestly undervalued. This indicates that the long-term return of its stock is likely to be higher than its business growth.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It takes into account historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock price is significantly above the GF Value Line, it is considered overvalued. Conversely, if it is significantly below the GF Value Line, its future return is likely to be higher.
In the case of HP, it appears to be modestly undervalued. This suggests that investors may have the opportunity to earn higher returns in the long run.
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HP's Financial Strength
Before investing in a company, it is essential to assess its financial strength. HP's cash-to-debt ratio, which stands at 0.16, is lower than 922% of companies in the Hardware industry. This indicates fair financial strength, with a rank of 5 out of It is crucial to note that investing in companies with poor financial strength carries a higher risk of permanent loss of capital.
HP's Profitability and Growth
Investing in profitable companies is generally less risky, especially those with consistent profitability over the long term. HP has been profitable for 10 years over the past decade. With revenues of $520 billion and an Earnings Per Share (EPS) of $64 in the past 12 months, HP's operating margin of 89% is better than 67% of companies in the Hardware industry. This indicates strong profitability.
Growth is another crucial factor in assessing a company's valuation. HP's 3-year average annual revenue growth rate is 19%, ranking better than 773% of companies in the Hardware industry. Additionally, its 3-year average EBITDA growth rate of 32% is better than 73% of companies in the same industry.
Furthermore, comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. In the past 12 months, HP's ROIC was 193, while its WACC was 5This indicates that HP is creating value for its shareholders.
Hp solution center: discontinued & replaced by hp printer assistantIn conclusion, HP Inc (NYSE:HPQ) stock appears to be modestly undervalued. The company has fair financial strength and strong profitability. Its growth ranks better than the majority of companies in the Hardware industry. Investors looking for high-quality companies with potential above-average returns may consider exploring HP stock further. To learn more about HP's financials, you can check out its 30-Year Financials.
Disclaimer: This article first appeared on GuruFocus.