HP Inc (HPQ, Financial) recently showcased a daily gain of 3.78%, coupled with a 3-month gain of 7.06%, reflecting a positive trend in the stock market. With an Earnings Per Share (EPS) of $3.42, investors are keen to understand whether this stock is currently fairly valued. This article delves into the valuation analysis of HP (HPQ) to provide a clearer picture of its market standing. Read on for an in-depth analysis that could inform your investment decisions.
Company Introduction
HP Inc (HPQ, Financial), a titan in the PC and printing industries, has honed its focus on these sectors since its 2015 split from Hewlett Packard Enterprise. The company primarily targets the commercial market while maintaining a presence in the consumer device and printer segments. With a global customer base and only one-third of sales originating from the US, HP has fully outsourced manufacturing and relies extensively on channel partners for sales and marketing. When comparing the stock price of $30.23 to the GF Value, which estimates the fair value at $29.81, we set the stage for a comprehensive evaluation of HP's intrinsic value.
Summarize GF Value
The GF Value is a unique measure of the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, as well as future business performance estimates. This proprietary calculation suggests that HP (HPQ, Financial) is fairly valued at its current price with a market cap of $29.60 billion. The GF Value Line serves as a benchmark, indicating that the stock should trade close to this fair value estimate. If a stock's price significantly deviates from this line, it suggests a potential misalignment with its intrinsic value, affecting future returns.
Given that HP is fairly valued, its stock's long-term return is expected to align closely with the company's business growth rate.
Link: These companies may deliver higher future returns at reduced risk.Financial Strength
Assessing a company's financial strength is crucial before investing in its stock. Companies with weak financials pose a greater risk of permanent loss. HP's cash-to-debt ratio stands at 0.21, ranking lower than 87.76% of competitors in the Hardware industry. This places HP's overall financial strength at a fair score of 5 out of 10.
Profitability and Growth
Investing in profitable companies, particularly those with a history of consistent profitability, is generally less risky. HP has been profitable for the last 10 years, with a revenue of $53.10 billion and an Earnings Per Share (EPS) of $3.42 over the past twelve months. Its operating margin of 8.09% ranks above 70.24% of peers in the Hardware industry, reflecting strong profitability with a rank of 8 out of 10.
The growth of a company is a pivotal factor in its valuation, as it is closely correlated with long-term stock performance. HP's 3-year average annual revenue growth rate of 10.4% surpasses 67.28% of companies in the Hardware industry, and its 3-year average EBITDA growth rate of 13.2% is better than 55.21% of its industry peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) offers insight into its profitability relative to the capital invested in the business. Ideally, ROIC should exceed WACC. HP's ROIC over the past 12 months is 16.17, outperforming its WACC of 9.22.
Conclusion
In summary, HP Inc (HPQ, Financial) is deemed to be fairly valued. The company's financial condition is fair, and its profitability is strong. It stands out in growth within the Hardware industry, ranking better than 55.21% of its peers. For a deeper understanding of HP's financials, you can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
