HP Inc (HPQ, Financial) has recently seen a daily change of -1.79% in its stock price, and a 3-month gain or loss of -1.89%, with an Earnings Per Share (EPS) sitting at 3.42. Investors and analysts alike are keen to understand: is HP currently fairly valued? This article delves into HP's financials, market performance, and intrinsic value to provide a comprehensive valuation analysis. Keep reading for an in-depth exploration of HP's true market value.
Company Overview
HP Inc (HPQ, Financial), a titan in the PC and printing sectors, has honed its focus on these markets since its 2015 separation from Hewlett Packard Enterprise. With a strategy geared towards the commercial market, while still catering to consumer devices and printers, HP boasts a diverse and global customer base, with only a third of its sales originating from the US. The company's manufacturing is entirely outsourced, and it relies significantly on channel partners for sales and marketing. Now, let's juxtapose HP's stock price against the GF Value, an estimate of its fair value, to set the stage for a deeper evaluation of the company's worth.
Understanding the GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, calculated through a unique methodology. It incorporates historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance projections. The GF Value Line, depicted on our summary page, indicates the fair trading value of the stock. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the price is well below this line, the stock could be undervalued, suggesting higher future returns.
HP (HPQ, Financial) appears to be fairly valued according to GuruFocus' valuation method. With a current stock price of $29.11 and a market cap of $28.50 billion, the GF Value suggests that HP's long-term stock return may align closely with its business growth rate.
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Financial Strength Analysis
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage provide insight into a company's financial health. HP's cash-to-debt ratio stands at 0.21, which is lower than 88.2% of its peers in the Hardware industry. With an overall financial strength rating of 5 out of 10, HP's financial condition is considered fair.
Profitability and Growth Prospects
A profitable company, especially one with consistent performance, is generally a safer investment. HP has maintained profitability for the last decade. The past year saw revenues of $53.10 billion and an Earnings Per Share (EPS) of $3.42. Its operating margin of 8.09% ranks above 70.97% of competitors in the Hardware industry. HP's profitability score is a robust 8 out of 10.
Growth is a pivotal factor in valuation, often linked to long-term stock performance. HP's 3-year average annual revenue growth rate is 10.4%, surpassing 68.61% of its industry counterparts. The 3-year average EBITDA growth rate is 13.2%, which is higher than 58.45% of similar companies.
Evaluating ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides another perspective on a company's profitability. ROIC assesses the efficiency of cash flow generation relative to invested capital, while WACC represents the average rate expected to be paid to all security holders. If ROIC exceeds WACC, it indicates value creation for shareholders. HP's ROIC over the past 12 months was 16.17, notably higher than its WACC of 9.27.
Final Thoughts on HP's Valuation
In conclusion, HP Inc (HPQ, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is robust. Its growth outperforms 58.45% of companies in the Hardware industry. For a more detailed look at HP's financials, you can view 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.
