HP Inc (HPQ, Financial) has recently shown a daily gain of 2.83%, yet over the past three months, it has experienced a loss of 6.86%. With an Earnings Per Share (EPS) of $2.32, investors are keen to understand whether the stock is modestly undervalued. This article delves into the valuation analysis of HP (HPQ), inviting readers to explore the financial nuances that may affect its market position.
Company Introduction
HP Inc (HPQ, Financial), a titan in the PC and printing sectors, has honed its focus on these markets since its 2015 split from Hewlett Packard Enterprise. With a strategy centered on the commercial market, while still catering to consumer electronics and printers, HP boasts a diverse and global customer base, with only a third of its sales originating from the U.S. The company has completely outsourced manufacturing and relies heavily on channel partners for sales and marketing. A comparison between HP's stock price of $28.66 and the GF Value of $31.75, which estimates fair value, hints at a potential undervaluation worth investigating.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this methodology, HP (HPQ, Financial) appears to be modestly undervalued. The GF Value suggests that the stock's fair value is higher than its current trading price, indicating that HP (HPQ) may offer a higher long-term return potential relative to its business growth. This assessment is crucial for investors seeking opportunities that may yield above-average returns.
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Financial Strength
When assessing a company's investment risk, its financial strength is paramount to avoid permanent capital loss. HP's financial strength, with a cash-to-debt ratio of 0.18, ranks lower than 89.24% of its peers in the Hardware industry, suggesting caution. However, with a financial strength rating of 5 out of 10, HP's overall condition is deemed fair.
Profitability and Growth
HP's profitability has been consistent over the past decade, with revenues of $54.70 billion and an Earnings Per Share (EPS) of $2.32 in the last 12 months. Its operating margin of 7.62% surpasses 66.92% of its competitors in the Hardware industry, reflecting robust profitability. Furthermore, HP's growth rates in revenue and EBITDA outperform a majority of its industry counterparts, highlighting its value creation potential for shareholders.
ROIC vs WACC
An insightful profitability metric is the comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). HP's ROIC of 12.14% over the past year exceeds its WACC of 9.65%, indicating efficient cash flow generation relative to its capital investments. This comparison is a positive sign for potential investors.
Conclusion
In conclusion, HP Inc (HPQ, Financial) presents itself as a modestly undervalued investment opportunity. The company's fair financial condition, strong profitability, and commendable growth rankings make it a noteworthy candidate for value investors. To gain deeper insights into HP's financials, one can examine 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.
