HP’s stock price has been declining due to the company’s revenue missing Wall Street’s estimates in its second-quarter earnings report. The company’s net revenue declined 19%, 22%, and 10% year-over-year in Q1, Q2, and Q3, respectively, of the current fiscal year. Management blamed soft demand and pricing pressure due to the elevated channel inventory across the industry for this decline.
Where is the Potential for HPQ Rebound?
HP’s investments in software, security, and AI (Artificial Intelligence) enable it to develop new solutions, which augur well for future growth. However, macro conditions are not improving as fast as the company expected. Further, aggressive pricing in the PC market, a sluggish demand environment in China, and weak enterprise demand pose challenges.
HP is, however, taking steps to improve its financials by optimizing its portfolio reducing the number of SKUs (stock-keeping units) and lowering structural costs to cushion margins.
Given the near-term headwinds, analysts remain sidelined on the stock. HPQ stock has one Buy, seven Hold, and three Sell recommendations for a Hold consensus rating on TipRanks. Moreover, analysts’ average price target of $29.55 implies a limited upside potential of 4.31%.
Seven Years Since the Divorce of Hewlett Packard's Operational Segments
Hewlett-Packard (HP) split into two companies, HP Inc. (HPQ) and Hewlett Packard Enterprise (HPE), on November 2, 2015. The split was part of the company’s five-year plan to turn around its business, which had been hit by the emergence of cloud technology and continued softness in PC shipments. HP Inc (HPQ). focuses on PCs and Printers, while HPE focuses on Servers, Storage, The Cloud, Networking, Services, and Software. The split was initiated to free up the Enterprise Business from the sluggish PC Business.
Some analysts are upbeat about HP Inc. and expect HPE to become an acquisition target in the long term. However, HPE CEO Meg Whitman denied that HPE might become an acquisition target. Meg Whitman said that “as two independent, industry-leading companies, Hewlett-Packard Enterprise and HP Inc. can drive more focused business strategies, innovation roadmaps, and go-to-market models. The separation will also present better choices for investors by creating two distinct and attractive investment profiles”.
My Decision for HPQ
HPQ reported less than favorable numbers on September 11, 2023. HPQ Stock has declined (-13.32%) in the past month. This current price-point, $27.80, seems to offer an opportunistic time to Buy. I had sold 50% of my shares on March 29. 2023 at $28.20. I took a loss on the sale of Stock, at that point. I repurchased Shares today at $27.68 allowing me to achieve a gain of $0.52 per share... and a loss for Tax purposes!
Using Price Movements over the past 90 Days, HPQ had an average high of $31.17 and low of $30.61. With consideration of the Revenue decline, it seems the Market has over stretched the negative outlook by about 3%. A gain I believe I will recapture before their next earnings report.
For the Purposes of Swing Trading Strategies, I calculated the average variance, over the previous 90 days, (Between Daily Low and High) at $0.68. At today's price, the average variance offers a broad window of 2.45% to be exploited by Swing trading. Deducting a 20% Margin for Safety, I see Swing Trading Targets at 2% of above Purchase and below Sale. I expect the next three months to be gainful, Swing Trading HPQ. I will be positioning Swings for upward trends tightening the margin on repurchases to 1% until... $30.89 price is reached.
I do not like the Fundamental outlook of the Company. Just comparing Assets to Debts (Negative Equity) makes me ponder how long a recovery will take. Especially with declines in Revenue!