HP Inc. (HPQ): An Overlooked Tech Stock Poised for a Comeback
41min read HP Inc. (NYSE: HPQ), the global leader in printing and personal computing solutions, has quietly navigated a challenging tech landscape while maintaining its financial footing. Despite its position as a stalwart in an evolving industry, HPQ remains underappreciated by investors. This article explores why HP could be a compelling buy now, supported by its improving cash flow, cost-cutting initiatives, and a favorable valuation landscape.
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A Closer Look at HP’s Financial Resilience
HP’s Q1 FY2025 results highlighted resilience amid macroeconomic headwinds. Revenue rose 2.4% year-over-year to $13.5 billion, with non-GAAP operating margins holding steady at 7.3%. While GAAP EPS dipped to $0.59, free cash flow surged 180% YoY to $100 million, signaling improved liquidity. The company returned $400 million to shareholders through buybacks and dividends, a testament to its financial discipline.
The Future Ready Plan, HP’s restructuring initiative, now targets $1.9 billion in annual cost savings by fiscal 2025, up from prior guidance. This bodes well for margin expansion, especially as the company pivots to higher-margin software and services. However, the negative debt-to-equity ratio (-10.17 as of January 2025) remains a concern, reflecting elevated leverage. Still, HP’s long-term debt of $8.27 billion is manageable given its cash flow trajectory.
Valuation: A Bargain in Tech?
HP’s valuation appears compelling relative to its peers. While the exact P/E ratio isn’t provided in recent reports, the stock’s current price of ~$26 (as of May 2024) contrasts with an average analyst price target of $33.45, implying a 28.9% upside. A Deep Learning model predicts HPQ could reach $47.01 by May 2025, a 75% increase from its 2023 low of $25.22.
The company’s price-to-book ratio of 0.5 (vs. the sector average of 2.3) suggests it’s trading at a significant discount. This undervaluation could narrow as HP capitalizes on its $54 billion addressable market in printing and IT services, particularly with the rise of hybrid work driving demand for reliable hardware and software solutions.
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Analyst Sentiment and Risks
Analysts are cautiously optimistic. While the consensus rating is Hold, 27% of analysts rate HPQ a Buy, citing its cost discipline and potential for margin recovery. Notably, Evercore ISI and J.P. Morgan see $32–$34 price targets, while bulls like HSBC have raised their targets to $38. Risks include geopolitical tensions (e.g., U.S.-China trade dynamics), which could disrupt supply chains, and margin pressures from commoditized hardware sales.
HP’s strategy to shift 90% of North American sales away from China by 2025 aims to mitigate geopolitical risks, but execution remains key. Additionally, the negative equity position (-$1.07 billion) underscores the need for sustained profitability to rebuild shareholder value.
Conclusion: A Turnaround Play with Upside
HP Inc. presents a compelling opportunity for investors seeking value in a tech sector dominated by high-growth darlings. Its strong cash flow, aggressive cost-cutting, and undemanding valuation offer a solid foundation for recovery. While risks like high leverage and margin pressures linger, the $47 price target by 2025—driven by improving operational efficiency and a rebound in enterprise demand—supports a bullish stance.
With a 28.9% consensus upside and a stock trading at a fraction of its peers’ valuations, HPQ is a prime candidate for a rebound. Investors should monitor execution on its Future Ready Plan and margin trends, but the data suggests this overlooked tech stock is poised for a comeback.
In a market hungry for stability, HP’s blend of cash flow resilience and strategic agility makes it a hidden gem worth buying now.
