HP Inc. (HPQ – Free Report) is one of those technology companies that have been demonstrating remarkable share price performance. HP is one of the two companies which came into existence post the split from the parent company — Hewlett-Packard Company — in November 2015. The other company was Hewlett Packard Enterprise Company (HPE – Free Report) . The company has generated high returns for investors in the year-to-date period.
The stock has been clocking solid returns since the split and has surged approximately 70.8%, substantially outperforming the S&P 500’s growth of 32.2%. The major part of the rally has been witnessed this year. In a year, the stock has appreciated 34.5%, while the S&P 500 has advanced 16.3%.
Let’s analyze the reasons behind this impressive surge in share price and consider why HP will continue its momentum in the near-term as well.
PC Business Revived
Post the split, HP adopted a strategy of focusing on product innovation & differentiation, pricing, and marketing and sales activities to trigger demand for its PC products in the market. The company has launched various models under its PC product lines of EliteBook, Spectre and Pavilion Wave, in the last two years.
The impact of these initiatives is well highlighted by the fact that the company has regained the pole position in the PC segment by displacing Lenovo. Also, according to data compiled by IDC, during fourth-quarter 2017, the company’s PC shipments registered the seventh quarter of consecutive year-over-year growth after witnessing several quarters of decline.
Furthermore, the two independent research firms — Gartner and International Data Corporation — hinted that the PC industry has been moving toward stabilization. Therefore, we believe stabilization in PC shipments will benefit business prospects of companies like HP.
Revamping Print Segment
The company’s efforts to revamp printing business have also been commendable. It should be noted that HP has acquired Samsung Electronics’ printer business. The acquisition is a strategic fit for HP as it has expanded the company’s printing business, with the addition of 6,500-plus printing patents owned by Samsung.
In addition to the above, the company is now focused on fortifying its 3D printing business capabilities. However, unlike 3D Systems (DDD – Free Report) and Stratasys (SSYS – Free Report) , which target all kinds of consumers, HP is emphasizing only on industrial markets due to their ability to afford a premium range of 3D printing solutions. It should be noted that even though HP has been operating in this space for almost five years now, it still lags behind 3D Systems and Stratasys.
However these efforts have paid off well with the company registering the fourth consecutive quarter of print business revenue growth in first-quarter fiscal 2018.
Also, the company’s last quarterly results reflected revenue growth for the sixth consecutive quarter after witnessing a prolonged period of decline. Further, the Personal Systems and Print segments improved for the fourth straight quarter after 2010.
Stock Still Undervalued
The stock currently trades at a forward earnings estimate at 12.2x, which is way lower than the industry average of 15.3x. Given its recent track record of revenues and earnings growth, as well as the long-term forecast, the stock is highly undervalued which signifies that it is still left with significant upside potential.
Moreover, HP has a VGM Style Score of A. We note that our VGM score highlights the determining elements in a stock that can push the stock price higher. We can essentially filter out the negatives and focus on the positives which drive price.
Consequently, we consider HP as one such technology stock that investors should consider for near-term opportunities. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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