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HP: Is There Room Left to Run?

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GuruFocus.com
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- By Nicholas Kitonyi

Shares of U.S. computing giant HP Inc. (NYSE:HPQ) are up nearly 9% this week following the release of its fiscal fourth-quarter results on Tuesday. The company's revenue and earnings topped analyst expectations, which helped trigger a spike in the stock price.

HP: Is There Room Left to Run?
HP: Is There Room Left to Run?


HP has now gained nearly 70% since its lows in March. However, it is only up 7% year-to-date after suffering a sharp decline in the March Covid-19 market crash. This suggests that despite the 70% gain, there could still be room left to run going to the tail-end of the year, in my opinion, as there has been no permanent decline in overall demand for the company's products.

In fact, HP's top line has been boosted by a rise in computer sales amid the Covid-19 pandemic. Manufacturers of personal computers, including Dell Technologies Inc. (NYSE:DELL), Lenovo Group Ltd. (HKSE:00992) and Asustek Computer Inc. (TPE:2357), have benefited from the work-from-home and learn-from-home environments necessitated by the pandemic.

Highlights from recent quarterly results

In the company's most recent quarterly results, HP reported earnings per share of $0.62, which beat analyst expectations of $0.52. The company's fiscal Q4 revenue came in at $15.23 billion, beating Wall Street estimates of $14.72 billion.

It reported net revenue of $56.6 billion for full fiscal year 2020, down 3.36% from the prior year. Non-GAAP earnings per share for the year came in at $2.28, well above the company's previous guidance range of $2.16 to $2.20.

Looking forward, HP has provided guidance of $0.64 to $0.70 for fiscal Q1 earnings per share compared to the consensus Street estimate of $0.53.

Enrique Lores, President and CEO of HP, said that the company experienced strong shipments during the quarter, which reflected "the important role HP technology is playing in the lives of our customers. Our results give us great confidence in our ability to drive long-term growth and shareholder value in 2021 and beyond."

Valuation

Shares of HP are currently trading at a trailing 12-month price-earnings ratio of 11.12, which is significantly lower than competitor Dell's price-earnings ratio of 21.91. Acer Inc. (TPE:2353), another competitor, also trades at a higher price-earnings ratio of 15.90, while Lenovo's price-earnings ratio is 11.13. On the other hand, Asustek trades at a more exciting price-earnings ratio of 9.71.

However, when we factor in expected earnings growth for the next 12 months, HP stands out with a forward price-earnings ratio of 9.24. Dell, on the other hand, trades at a forward price-earnings ratio of 10.71, while Asustek, Lenovo and Acer trade at a forward price-earnings ratios of 10.83, 10.34 and 14.01, respectively.

In summary, the year-to-date gain of just 7% and its valuation multiples relative to peers could make the stock a good value opportunity, in my view.

Disclosure: No position in the stocks mentioned.

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This article first appeared on GuruFocus.