HP Inc (HPQ, Financial) has experienced a slight daily decline of 2.1%, with a negligible 3-month gain of -0.03%. However, its Earnings Per Share (EPS) stand at a solid $3.42. Investors are often caught in the dilemma of stock valuation: Is HP (HPQ) fairly valued at its current market price? This article aims to delve into this question by providing a comprehensive valuation analysis, inviting readers to explore the financial intricacies that determine HP's market value.
Company Introduction
HP Inc (HPQ, Financial), a titan in the PC and printing industries, has honed its focus on these sectors since its separation from Hewlett Packard Enterprise in 2015. With a global customer base and only a third of its sales originating from the US, HP has strategically positioned itself in the commercial market while also catering to the consumer segment. The company has outsourced its manufacturing and relies significantly on channel partners for sales and marketing. A comparison between HP's stock price of $29.78 and the GF Value of $30.05, which estimates its fair value, sets the stage for a deeper investigation into the company's intrinsic worth.
Summarize GF Value
The GF Value is a unique metric that denotes the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance forecasts. HP's current stock price, coupled with its market cap of $29.10 billion, suggests that it is fairly valued. The GF Value Line, a representation of the stock's fair trading value, predicts that HP's stock price will likely oscillate around this benchmark. When a stock trades significantly above this line, it is considered overvalued, potentially leading to poorer future returns. Conversely, a price well below the GF Value Line may indicate a higher likelihood of favorable returns. Given that HP aligns closely with its GF Value, its long-term stock return could mirror the company's business growth rate.
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Financial Strength
Before investing, assessing a company's financial strength is crucial, as weak financial health can lead to a higher risk of loss. HP's cash-to-debt ratio of 0.21 is lower than 87.76% of its peers in the Hardware industry, suggesting a less robust financial position. With an overall financial strength rating of 5 out of 10, HP's financial health is deemed fair.
Profitability and Growth
Investing in profitable companies is generally less risky, particularly those with a history of consistent profitability. HP has maintained profitability for the past decade, with an operating margin of 8.09%, surpassing 70.74% of the companies in the Hardware industry. GuruFocus ranks HP's profitability as strong, based on its past year's revenue of $53.10 billion and Earnings Per Share (EPS) of $3.42.
Growth is a pivotal factor in valuation. HP's 3-year average annual revenue growth rate of 10.4% ranks better than 68.84% of its industry counterparts. Its EBITDA growth rate over the same period is 13.2%, outperforming 56.94% of the companies in the Hardware industry, indicating a positive trend in growth.
ROIC vs WACC
A key profitability metric is the comparison of Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC). ROIC indicates how effectively a company generates cash flow relative to its invested capital. When ROIC exceeds WACC, it suggests value creation for shareholders. HP's ROIC of 16.17% over the past 12 months is notably higher than its WACC of 9.39%, indicating efficient capital utilization and value generation.
Conclusion
In conclusion, HP Inc (HPQ, Financial) appears to be fairly valued based on current market indicators. The company exhibits a fair financial condition and robust profitability, with growth rates outshining many of its industry peers. Interested investors can gain deeper insights into HP's financial trajectory by exploring its 30-Year Financials here.
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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.
