The company: Hewlett-Packard HP (HPQ) Inc. is a large cap computer hardware company that was established in 1939. The company builds and sells personal computers, servers, hard drives, networking products, printers and software. With the industry evolving, HP is having to adapt, and luckily, it has the cash flow to do so. In recent years they have expanded into the 3D printing field and software. Although it’s classified as a computer hardware company, it’s evolving into an electrical consumer producer and SaaS company.
Advantages: A good thing about this company is the industry it operates in. Nearly 75% of the US population have a computer, and with computers lasting around four years, it puts in perspective the potential revenue just from computers. The servers, hard drives and networking products support the fast-growing cloud infrastructure. If HP keeps pushing for innovation in these products, it’ll stay prominent. One product that HP has expanded into is 3D printers. These products have really gained a ton of attraction. Something else that’s promising is their reputation in the industry. They work with a handful of large customers that keep a steady stream of revenue coming in. The world has changed since COVID. We depend on computer related products, the revenue in this industry will only grow.
Disadvantages: I think the computer industry is well established but HP has suffered before. In 2014 revenue dropped significantly due to competition. Another main product of HP are printers. I think people are trying to print less, not more. I’m not saying it’s a dying product, I just don’t think it’s one that’ll grow at a noticeable rate. Also, when it comes to printers, most people want just a basic cheap printer, not the nice expensive one. This company has the FCF to invest back into the company, but if they don’t focus on the right products, there is a chance they could see another significant drop in the revenue.
Valuation and current state: The company is currently at around an enterprise value of 8.15. When looking at other valuation measures such as P/E, P/S, ROE, it is lower than the industry average, but it’s still higher than the company’s average. From these valuation measures, it seems like an undervalued stock, and from the conservative DCF I ran, I nearly got double-digit returns. Something that I definitely liked was the consistent share buybacks and easily payable dividend that is offered. One thing that is not attractive is the negative equity. I still haven’t identified how and where in the balance sheet this is, so further investigation is needed.
Concluding thoughts: I think this stock has the potential to produce great returns. I do get concerned about how innovative this company can be. Nowadays capital is cheap, so it’s not a problem for other companies to try and expand into this industry. Although this company seems to be at a fair price, I would like to see the valuation get cheaper before a small or full position is acquired.
Links:
https://financials.morningstar.com/ratios/r.html?t=0P000002O2&culture=en&platform=sal
https://www.omen.com/us/en/omen-gaming-hub.html
https://www8.hp.com/us/en/home.html
https://finance.yahoo.com/quote/HPQ?p=HPQ&.tsrc=fin-srch
https://www.morningstar.com/stocks/xnys/hpq/quote
https://www.bustle.com/p/when-is-it-time-to-buy-a-new-computer-these-are-the-tell-tale-signs-you-need-to-say-goodbye-6457626
https://www.omen.com/us/en/omen-gaming-hub.html
https://www8.hp.com/us/en/home.html
https://finance.yahoo.com/quote/HPQ?p=HPQ&.tsrc=fin-srch
https://www.morningstar.com/stocks/xnys/hpq/quote
https://www.bustle.com/p/when-is-it-time-to-buy-a-new-computer-these-are-the-tell-tale-signs-you-need-to-say-goodbye-6457626
No comments:
Post a Comment