Amidst a daily loss of 4.32% and a three-month decline of 6.83%, investors are questioning whether Hewlett Packard Enterprise Co (HPE, Financial)'s stock is fairly valued. With an Earnings Per Share (EPS) of $0.82, the analysis of its intrinsic value is more pertinent than ever. This article aims to provide a clear valuation analysis, inviting readers to delve into the financial intricacies of HPE.
Company Introduction
Hewlett Packard Enterprise Co, a leading information technology vendor, specializes in hardware and software for enterprise solutions. Known for its compute servers, storage arrays, and networking equipment, HPE also boasts a robust high-performance computing business. With a goal to dominate the edge-to-cloud market, HPE leverages a primarily outsourced manufacturing model and sustains a global workforce of 60,000. When juxtaposing the company's stock price of $15.74 against the GF Value of the same amount, an estimation of fair value emerges, setting the stage for an in-depth valuation exploration.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and projections of future business performance. This calculation suggests that the stock price should ideally oscillate around the GF Value Line. If the price significantly exceeds the GF Value Line, the stock may be overvalued, with poor future returns expected. Conversely, if the price falls well below this line, the stock might be undervalued, potentially leading to higher future returns. Currently, the market cap of Hewlett Packard Enterprise Co stands at $20.20 billion, with the stock's valuation being categorized as fair.
Given that Hewlett Packard Enterprise Co is fairly valued, the long-term return of its stock should align closely with the company's business growth rate.
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Financial Strength
Investors should consider a company's financial strength to avoid the high risk of permanent capital loss. Indicators such as the cash-to-debt ratio and interest coverage provide insight into financial robustness. Hewlett Packard Enterprise Co's cash-to-debt ratio stands at 0.22, which is lower than 87.09% of its peers in the Hardware industry. The company's overall financial strength has been rated at 5 out of 10 by GuruFocus, suggesting a fair financial condition.
Profitability and Growth
Investing in profitable companies, especially those with a consistent track record, generally carries less risk. A company like Hewlett Packard Enterprise Co, with high profit margins, is indicative of strong performance potential. With 9 profitable years in the last decade, HPE's operating margin of 8.88% ranks better than 72.18% of the companies in the Hardware industry, reflecting its fair profitability. However, its growth prospects appear less optimistic, with a 3-year average annual revenue growth rate of just 0.4%, placing it below 62.29% of its industry counterparts. The 3-year average EBITDA growth rate is -4.9%, which is lower than 75.09% of the companies in the Hardware industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to gauge profitability. ROIC measures cash flow efficiency relative to capital investment, whereas WACC represents the average rate a company pays to finance its assets. Ideally, the ROIC should exceed the WACC, indicating value creation for shareholders. For HPE, the ROIC is 4.51, and the WACC is 8.34, suggesting that the company may not be generating sufficient value.
Conclusion
Overall, Hewlett Packard Enterprise Co (HPE, Financial) is estimated to be fairly valued. The company maintains a fair financial condition and exhibits fair profitability. However, its growth ranks below a significant portion of its industry peers. For a more detailed financial overview, potential investors can examine HPE's 30-Year Financials.
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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.
