With a recent daily gain of 2.73% and a three-month gain of 16.02%, HP Inc (HPQ, Financial) seems to be on a positive trajectory. But the crucial question remains: is HP fairly valued? As of the latest data, HP has an Earnings Per Share (EPS) of 3.42. This article delves into HP's valuation, providing a thorough analysis to help investors determine whether HP stands as a prudent investment.
Company Overview
HP Inc (HPQ, Financial), a major player in the PC and printing markets, has strategically focused on these areas since its 2015 split from Hewlett Packard Enterprise. The company, which outsources its manufacturing, relies heavily on channel partners for sales and marketing, maintaining a strong presence in both the commercial and consumer sectors. Despite its global reach, a third of its sales come from the US. Currently, HP's stock price stands at $32.69, with a market capitalization of $32 billion, aligning closely with its GF Value of $30.15, suggesting that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure calculated by GuruFocus to estimate the fair value of a stock. It incorporates historical trading multiples, an adjustment factor based on past returns and growth, and future performance estimates. For HP, the GF Value suggests a fair valuation, indicating that the stock price should hover around this value. A significant deviation from this line might imply overvaluation or undervaluation, influencing future returns.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to minimize the risk of capital loss. HP's cash-to-debt ratio of 0.21 ranks it lower than many of its peers in the Hardware industry. This financial metric, alongside a financial strength rating of 5 out of 10 from GuruFocus, highlights an area of potential concern for investors.
Profitability and Growth Prospects
HP has maintained profitability over the past decade, with a notable operating margin of 8.09%, positioning it well within its industry. The company's revenue over the past twelve months stood at $53.10 billion, with an operating margin that surpasses many competitors. Its growth metrics are equally impressive, with a 10.4% average annual revenue increase, outpacing 70.7% of its industry peers.
ROIC vs. WACC
An effective way to gauge a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). HP's ROIC of 16.17 significantly exceeds its WACC of 9.5, indicating efficient management and profitable investment returns.
Conclusion
HP Inc (HPQ, Financial) is assessed to be fairly valued based on current analyses, with a solid financial foundation and strong profitability indicators. For investors considering HP, the stock presents a balanced opportunity for growth aligned with business performance. For further details on HP's financials, visit the 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.
