Should You Buy HP Stock For The Shares It Keeps Retiring?

HP (HPQ) stock has run hard over the past six months, gaining about 78%, and it still trades roughly 8% below its 52-week high. The steadier story is the share count. HP retires a slice of its own stock every year, so earnings per share grow faster than profits do. The question is whether a rising memory bill breaks that.

What Does HP’s Buyback Actually Hand You?

Over the past year HP cut its share count by 3.0%, and by about 2.5% a year on average over the last three years. The profit pool then gets divided among fewer owners, so each share you hold is a bigger slice of it. Over the last three years net income grew 3.7% a year on average, while earnings per share grew 5.7% a year on average. That gap is the stock HP retired.

Dividends and buybacks together came to 6.1% of HP’s market value over the latest twelve months, after accounting for stock-based compensation. Free cash flow covered that payout about 1.7 times.

Can HP Keep Funding It While Memory Costs Rise?

The cash comes out of a business with thin margins. Management put Personal Systems’ operating margin at 4.6% in fiscal Q3 2026, below its own long-term range. Revenue in that segment still rose 18% year over year, on premium machines, AI PCs and higher prices rather than more units. Print revenue fell in fiscal Q3 2026, and HP is gaining share in tank printers.

Working capital is what turns thin margins into cash. Management says HP’s cash conversion cycle runs at negative 37 days: cash arrives before the bills go out. So record fiscal Q3 2026 revenue of $15.7 billion throws off more cash than a margin that thin suggests, and HP raised its fiscal 2026 free cash flow outlook to $3.0 billion to $3.2 billion.

The costs are moving the other way. Management expects memory and storage costs to keep rising as a share of the bill of materials, and guides Personal Systems’ fiscal Q4 2026 margin below its fiscal Q3 2026 level, then improving into fiscal 2027. The payout carries conditions, too. Management’s commitment is to return roughly all of its free cash flow over time, not in any one year, and only while gross leverage stays under two times and nothing better comes along. HP said it ended fiscal Q3 2026 within its target leverage range.

Are You Paying Up For HP After That Run?

Not obviously. HP trades at 12.3 times trailing earnings, and a buyback does more work at a price like that, because each dollar spent retires more shares.

The three-year record is the caution. HP returned 35% in price over the last three years, against 77% for the S&P 500 over the same three years. The stock has gained more over the past six months than it has over the last three years.

Share retirement is the easy part. The harder question is whether that free cash flow outlook survives the memory bill, and our screen of capital compounders shows how HP’s record compares with others running the same playbook.

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