After an Impressive Run, Will HP Stock Continue to Rally?

HP (HPQ) has had an impressive run in 2020 because of its pandemic-ready business model and continued focus on research and development. As the remote working culture is expected to continue post COVID-19 pandemic, we believe the stock is well-positioned to hit new highs.

HP Inc. (HPQ) in Palo Alto, California is a printing and personal systems technology company that offers personal computing and access devices, imaging and printing products and related technologies solutions through its three segments: Personal Systems, Printing and Corporate Investments.

As the demand for computer hardware has accelerated as the backbone of a remote working culture, HPQ has grown significantly too. PQ is constantly expanding its HP Create Ecosystem vision to include new projects, partnerships, and products that support the creative communities evolving work styles.

The company gained  19.7% last year. This impressive performance combined with several other factors has helped HPQ earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates HPQ:

Trade Grade: A

HPQ is currently trading above its 50-day and 200-day moving averages of $22.93 and $19.43, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 29.5% gains over the past three months reflect solid short-term bullishness.

HPQ’ total revenues have increased 6.7% sequentially to $15.26 billion in the fourth quarter ended October 31, 2020. Its non-GAAP EPS improved 3.3% year-over-year to $0.62 over the same period, while free cash flow climbed 359% year-over-year to $ 1.8 billion.

In late October, HPQ announced an innovation involving the Create Ecosystem, which will offer creators new remote solutions and the necessary tools to collaborate, iterate, and accelerate. This will enable users to share their creations and work more easily in real-time from any environment.

In late October, , HPQ made significant advancements in the management and automation of complex 3D printing workflows and large-scale additive manufacturing fleets. It unveiled a new software solution, the HP Universal Build Manager, which will enable personalization and end-to-end control across multiple additive manufacturing technologies.

HPQ and Shutterfly expanded their strategic relationship in November. Shutterfly will invest in more than 60 new high-performance HP Indigo Digital Presses. This will help HPQ to better meet the demand of the growing e-commerce market of photo gifts and photo products.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, HPQ is well-positioned. The stock is currently trading just 0.4% below its 52-week high of $24.69.

The company’s net revenue has grown  at a CAGR of 2.9% over the past three years. This can be attributed to the company’s successful strategy in revolutionizing user experience through its premium displays that enable professionals to manage their digital workflows from anywhere with almost any application.

Peer Grade: A

HPQ is currently ranked #6 of 30 stocks in the Technology - Hardware Industry. Other popular stocks in this industry are Apple Inc. (AAPL), International Business Machines Corporation (IBM) and Dell Technologies Inc. (DELL).

AAPL, IBM and DELL have gained 45.5%, 4.2% and 33.4%, respectively,  over the past six months This compares to HPQ’s 41.1% returns over this period.

Industry Rank: A

The Technology – Hardware Industry is ranked #2 of the 123 industries. The companies in this industry are focused on manufacturing personal computers, cameras, smart phones printers, monitors, keyboards, mice, and webcams, as well as ATMs, self-service kiosks, point-of-sale terminals, and biometric readers.

As major business activities are increasingly being operated through technology platforms, the industry has  significantly over the past year. As remote working is expected to continue even after the pandemic, the demand for technology related hardware should keep rising.

Overall POWR Rating: A (Strong Buy)

HPQ is rated “Strong Buy” due to its impressive past performance and short-term bullishness, as determined by the four components of our overall POWR Rating.

Bottom Line

Despite soaring more than 40% over the past six months, HPQ has the potential to climb further based on its continued business growth, favorable earnings and revenue outlook and price momentum.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for HPQ. An average broker rating of 1.81 indicates favorable analyst sentiment. Of 16 Wall Street Analysts that rated the stock, two rated it “Strong Buy”.

Analysts expect HPQ’s revenues to rise 2.5% year-over-year to $14.98 billion in the current quarter ending January 31, 2021. The consensus EPS estimate indicates a 15.8% rise to $2.64 for the year ending October 31, 2021. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. This outlook should keep HPQ’s price momentum alive in the near term.

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HPQ shares were trading at $24.15 per share on Monday afternoon, down $0.44 (-1.79%). Year-to-date, HPQ has declined -1.79%, versus a -1.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.


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