With a daily gain of 3.09% and a 3-month gain of 12.93%, Hewlett Packard Enterprise Co (HPE, Financial)'s stock performance has been impressive. Its Earnings Per Share (EPS) stands at 0.78. However, the critical question is whether the stock is modestly overvalued? This article provides an in-depth valuation analysis of Hewlett Packard Enterprise Co (HPE) to answer this crucial question. Let's delve in.
Company Introduction
Hewlett Packard Enterprise is a leading information technology vendor that provides hardware and software to enterprises. Its primary product lines are compute servers, storage arrays, and networking equipment. It also has a high-performance computing business. The company's stated goal is to be a complete edge-to-cloud company, and its portfolio enables hybrid clouds and hyperconverged infrastructure. It uses a primarily outsourced manufacturing model and employs 60,000 people worldwide.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It provides an overview of the fair value that the stock should ideally be traded at.
The stock of Hewlett Packard Enterprise Co (HPE, Financial) appears to be modestly overvalued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value at $15.49. At its current price of $17.36 per share, Hewlett Packard Enterprise Co has a market cap of $22.40 billion and the stock appears to be modestly overvalued. This implies that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with poor financial strength have a higher risk of permanent loss. Hewlett Packard Enterprise Co has a cash-to-debt ratio of 0.21, which is worse than 87.62% of 2358 companies in the Hardware industry. The overall financial strength of Hewlett Packard Enterprise Co is 5 out of 10, which indicates that the financial strength of Hewlett Packard Enterprise Co is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Hewlett Packard Enterprise Co has been profitable 9 years over the past 10 years. Its operating margin of 8.73% better than 71.96% of 2425 companies in the Hardware industry. Overall, GuruFocus ranks Hewlett Packard Enterprise Co's profitability as fair.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Hewlett Packard Enterprise Co is 0.4%, which ranks worse than 62.01% of 2324 companies in the Hardware industry. The 3-year average EBITDA growth rate is -4.9%, which ranks worse than 74.96% of 1949 companies in the Hardware industry.
ROIC Vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Hewlett Packard Enterprise Co's return on invested capital is 4.46, and its cost of capital is 7.8.
Conclusion
In conclusion, the stock of Hewlett Packard Enterprise Co (HPE, Financial) appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 74.96% of 1949 companies in the Hardware industry. To learn more about Hewlett Packard Enterprise Co stock, you can check out its 30-Year Financials here.
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