Evaluating the investment potential of HPQ for value investors
HP Inc. (NYSE:HPQ), formerly known as Hewlett-Packard Company, dates back to 1939 and is currently the second largest PC vendor in the world. HPQ is currently trading up just 2.5% year-to-date in 2020, but 69% from its 52-week low of $12.54. As the stock contends with that year-to-date breakeven level, it has support from its 100-day moving average, which caught a pullback last month.
HPQ currently sports a ranking of 16 out of 100 on the Schaeffer's Volatility Scorecard (SVS). Using Schaeffer's historical database, we conduct proprietary research on each underlying equity and determined which of those underlying equities’ options have historically had underpriced or overpriced options. We rank each equity’s options relative to the others in our database, with scores ranging from zero to 100. Low SVS readings like this one point to the stock having consistently realized lower volatility than their options have priced in -- pointing to possible premium-selling candidates.
Today --after the close -- is HP's day in the earnings confessional. HP is looking to continue its impressive earnings-beat streak when it reports today. Earnings reports on HPQ have beat expectations on all four of its most recent quarterly reports. In the fourth quarter of 2019, HP beat expectations by $0.02. In the first quarter of 2020, the company beat expectations by a margin of $0.11. HP still managed to beat expectations by $0.07 in the second quarter 2020. In HP's most recent quarterly report, HP beat its earnings target by 14%. As for tonight's earnings report, HP is expected to increase in EPS to $0.52.
HPQ has a forward dividend of $0.70 and a dividend yield of 3.45%. The company last paid a dividend of $0.1762 for Q4 2020. HP has paid dividends regularly since 1989.
HP stock is, frankly, a mixed bag for value investors. The company has performed fairly well in terms of its revenue over the past few years, but HP has not been able to produce consistent growth in profits. Nonetheless, the coronavirus pandemic has lightly impacted the company’s massive revenue, which leaves room for the company to see some decent growth from a recovery.
Furthermore, HPQ sports a price-earnings ratio of 12.00 and a forward price-earnings ratio of 8.69. If the company is able to recover its net income to previously recorded levels, HP will be looking at an extremely attractive valuation from a fundamental perspective. HP’s biggest downfall and risk factor for investors lies in its balance sheet. The company’s liabilities are slightly more than its current assets. HP also carries $7.42 billion in debt and only $4.68 billion in cash.
Overall the company’s strong ongoing revenue and future net profit potential should outweigh its poor balance sheet, from a fundamental perspective. As HP recovers and begins to see more demand for the 3D printer side of its business, HP stock has the potential to reach new highs within the next few years.