Buy HP Inc. Stock For 25% Upside?

HPQ: Hewlett logo

Up more than 2x from its low in March 2020, at the current price of $28 per share, we believe HP Inc. stock (NYSE: HPQ) has further upside potential. HP Inc. has seen its stock rise from $14 to $28 off its March 2020 low, more than the S&P which increased by over 85% from its lows. Further, the stock is up around 25% from the level it was at before the pandemic. However, we believe that HPQ stock could rise around 25% to regain its recent high of $36, driven by expectations of steady demand growth and strong Q2 2021 results. Our dashboard What Factors Drove 39% Change In HP Inc. Stock Between 2018 And Now? has the underlying numbers behind our thinking.

HP Inc. stock’s rise since late 2018 came despite a 3% drop in revenues from $58.5 billion in FY 2018 to $56.6 billion in FY 2020 (HPQ’s fiscal year ends in October). Net margins dropped from 9.1% to 5% over this period, but this was largely due to a $387 million tax expense in FY’20, compared to a $2.13 billion tax benefit in FY ’18. Combined with a 12% drop in the outstanding share count, EPS (earnings-per-share) dropped 39%, from $3.30 to $2.01 over this period.

Relevant Articles
  1. Up 5% In A Fortnight, Can HP Inc. Stock Continue Outperforming The Market?
  2. What’s Next For HP Inc. Stock After Dropping 5% Last Week?
  3. Has HP Inc. Stock Peaked At $17?
  4. Here’s Why Hewlett-Packard’s Stock Could Touch $10
  5. Why Did HP’s Stock Price Grow 60% Between 2016 And 2018?
  6. Explaining The Big Rally In Xerox Stock This Year

However, HPQ’s P/E (price-to-earnings) multiple rose from 6x in 2018 to 12x by 2020 end, and has further risen to 14x currently. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of Coronavirus initially saw a drop in demand for computing devices and peripherals across all markets, which meant lower demand for HP’s products. However, with work from home becoming the new normal, demand for these products has risen since. This has benefited HPQ, as is evident from the company’s revenues in Q2 2021, which came in at $15.9 billion, up from $12.5 billion for the same period last year. Operating income rose from $826 million to $1.36 billion over this period, and with a roughly unchanged effective tax rate, EPS jumped from $0.53 to $1.00.

Additionally, with laptops and computer peripherals sales expected to stay strong, we believe demand for the company’s products will continue growing, and that revenues stand to benefit in the medium term. Further, if the company can continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple. We believe that HP Inc. stock can rise around 25% from current levels, to regain its recent highs of $36.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.


See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams