As value investors scour the market for investment opportunities, understanding the intrinsic value of a stock is crucial. Hewlett Packard Enterprise Co (HPE, Financial) currently shows a daily gain of 2% and a 3-month gain of 3.74%, with an Earnings Per Share (EPS) of 1.45. But the pressing question remains: Is the stock modestly overvalued? This article delves into a valuation analysis to answer this query and encourages readers to explore the nuanced financial landscape of HPE.
With a market cap of $22.80 billion and sales of $28.10 billion, Hewlett Packard Enterprise Co (HPE, Financial) stands as a significant player in the information technology sector. The company's operating margin of 8.46% and Return on Invested Capital (ROIC) of 4.51% highlight its financial performance, while its Weighted Average Cost of Capital (WACC) stands at 7.44%. But how does this translate into the company's fair valuation?
Understanding the GF Value
The GF Value is a proprietary measure that reflects the true intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When the stock price hovers significantly above the GF Value Line, it suggests an overvalued status, hinting at potentially lower future returns. Conversely, a price well below the line indicates a stock may be undervalued, with the potential for higher returns. Currently, HPE's stock price of $17.56 suggests a modest overvaluation compared to the GF Value of $15.58, prompting a closer examination of its long-term investment potential.
Considering Hewlett Packard Enterprise Co's valuation, it appears that the stock could yield a lower return than the company's business growth might suggest. This assessment is crucial for investors considering long-term investment in HPE.
Financial Strength and Stability
Investors must pay close attention to a company's financial strength to avoid the high risk of permanent capital loss. Hewlett Packard Enterprise Co's cash-to-debt ratio stands at 0.29, which is lower than 83.31% of its peers in the Hardware industry. The overall financial strength of HPE is rated as fair, with a score of 6 out of 10, suggesting a stable financial position that merits investor consideration.
Profitability and Growth Prospects
Profitable companies, especially those with a history of consistent profitability, present less risk for investors. Hewlett Packard Enterprise Co, with a 9-year profitability streak, boasts an operating margin of 8.46%, ranking it higher than 71.97% of its industry counterparts. The company's profitability rank is a solid 7 out of 10. Furthermore, HPE's growth has been notable, with a 3-year average EBITDA growth rate of 27.1%, outperforming 76.16% of the companies in the Hardware industry.
Evaluating Return on Invested Capital
An insightful way to gauge profitability is by comparing a company's ROIC to its WACC. A higher ROIC than WACC signifies value creation for shareholders. Over the past year, HPE's ROIC was 4.51, which unfortunately falls short of its WACC of 7.44, indicating potential challenges in generating sufficient cash flow relative to the capital invested.
Conclusion: Assessing HPE's Investment Potential
In summary, while Hewlett Packard Enterprise Co (HPE, Financial) is deemed modestly overvalued based on current market prices, the company maintains fair financial health and profitability. Its growth trajectory is commendable, surpassing a significant portion of its industry rivals. To gain a deeper understanding of HPE's financial journey, interested investors can explore 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.
