HP has been treading water for the past six months, recording a small loss of 4.5% while holding steady at $27.52. The stock also fell short of the S&P 500’s 14.9% gain during that period.
Is there a buying opportunity in HP, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think HP Will Underperform?
We don't have much confidence in HP. Here are three reasons why HPQ doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, HP struggled to consistently increase demand as its $54.71 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect HP’s revenue to rise by 1.5%, close to its flat result for the past five years. This projection doesn't excite us and suggests its newer products and services will not catalyze better top-line performance yet.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
HP’s EPS grew at an unimpressive 6.8% compounded annual growth rate over the last five years. On the bright side, this performance was better than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
Final Judgment
We see the value of companies helping their customers, but in the case of HP, we’re out. With its shares lagging the market recently, the stock trades at 8.2× forward P/E (or $27.52 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of HP
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