We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
HPQ Soars 21% YTD: Should You Buy, Sell or Hold the Stock?
Read MoreHide Full Article
HP Inc. (HPQ - Free Report) has been performing well, with its shares gaining 21.1% year to date (YTD). Despite this YTD surge, HPQ has not kept pace with the Zacks Computer – Micro Computers industry's growth of 28.7%, the Technology Select Sector SPDR Fund (XLK - Free Report) ETF’s return of 24.3%, and the broader S&P 500’s 27.3% rise over the same period. The stock has also underperformed its peers, including Apple Inc. (AAPL - Free Report) and Dell Technologies Inc. (DELL - Free Report) , which have gained 28.2% and 61.8%, respectively.
YTD Price Return Performance
Image Source: Zacks Investment Research
The divergence in performance suggests that HPQ’s growth is driven more by specific strengths rather than broad market optimism. This price performance is a testament to its market resilience and strategic focus.
This gain reflects investor confidence in the company’s ability to navigate the dynamic landscape of the technology sector, which has been plagued by macroeconomic headwinds, including supply chain issues and slowing demand for personal computers (PCs). HPQ’s performance in 2024 is noteworthy because it underscores a targeted focus on profitability, cost efficiency and expansion into higher-margin areas like managed services and digital printing. This approach has helped the company outperform its peers in a challenging environment.
Given these factors, the prudent strategy for investors would be to hold the stock rather than buy or sell it at this juncture.
Strengths in HPQ’s Business Segments
HP’s strategic diversification across segments has been a significant driver of its performance. The Personal Systems segment, which includes PCs and workstations, remains a key revenue contributor. In the fourth quarter of fiscal 2024, HPQ reported 2.1% year-over-year growth in this segment’s revenues, driven by a 4% increase in Commercial PC shipments.
This segment’s resilience is critical given the broader downturn in the consumer PC market, which has been affected by prolonged shifts to remote work and budget cuts in corporate spending on IT infrastructure. The focus on higher-value products like commercial notebooks and workstations, which command premium pricing, underscores HP’s strategy to mitigate margin pressure from lower-priced consumer PCs.
The Printing segment also saw modest growth in the fourth quarter, up 0.8% year over year. HPQ’s focus on expanding its printing business through improved hardware and software solutions, such as enhanced security features, has allowed it to recover market share in a declining market. The growth in Consumer Printing net revenues (up 3%) and Supplies (up 2%) highlights the company’s success in stabilizing this traditionally volatile segment. This performance is crucial as it provides HPQ with a steady revenue stream that supports its efforts to drive profitability across its diversified portfolio.
HPQ’s Strategic Initiatives to Drive Future Growth
HPQ’s recent strategic initiatives are aimed at driving future growth in higher-margin businesses and diversifying revenue streams. The company’s push into managed IT services, for example, represents a major shift from its traditional hardware business. Managed services revenues grew 12% in the fourth quarter, signaling strong demand for HPQ’s IT infrastructure management solutions. This segment’s growth is bolstered by the increasing trend of digital transformation among businesses, which requires robust IT solutions that HPQ is well-positioned to provide.
Moreover, the growing interest in generative artificial intelligence (AI)-enabled PCs might give a fresh boost to HP’s PC demand in the years ahead. The company had previously stated that AI PCs could be a key growth driver beginning next year.
It has also forecasted that 40-60% of all PCs will be AI PCs in the next three years. To make the most of the growing opportunities in this category, HPQ has launched several AI PCs this year and plans to continue to expand its AI PC portfolio. Such initiatives bode well for HP’s growth prospects.
HPQ Sports Attractive Valuation
HP remains attractively priced. Its forward 12-month price-to-earnings (P/E) ratio of 10.18 is below the industry average of 28.21, indicating that the stock is trading at a relative discount.
Image Source: Zacks Investment Research
Near-Term Challenges for HPQ
HP is navigating several near-term challenges that could weigh on its performance. Weakness in the global PC market remains a significant concern, with Consumer PC shipments declining 3% year over year in the fourth quarter of fiscal 2024, reflecting cautious spending by consumers amid economic uncertainties. Although the Commercial PC segment showed growth, sustained demand remains uncertain.
The Printing segment also faces hurdles, with Commercial Printing revenues slipping 1%, signaling subdued enterprise demand. While Supplies revenues grew 2%, its long-term growth potential appears limited as businesses increasingly adopt digital documentation solutions.
Adding to these challenges, HPQ’s cautious guidance for first-quarter fiscal 2025 highlights macroeconomic pressures and extended sales cycles. The company projects non-GAAP earnings per share between 70 cents and 76 cents, indicating a year-over-year decline of 6-14%. Analysts have also turned cautious about its earnings growth potential in the near term as reflected by the downward revision in the Zacks Consensus Estimate.
Image Source: Zacks Investment Research
Conclusion: Hold HPQ Stock for Now
Given HPQ’s YTD performance, attractive valuation and strategic focus on diversifying its business segments, holding the stock remains the most prudent strategy. While HPQ has underperformed relative to the broader market this year, its efforts to transition into higher-margin businesses and expand its managed IT services footprint provide a solid foundation for future growth.
For now, HPQ’s diversified portfolio, emphasis on sustainability, and solid execution make the stock worth holding as it navigates near-term challenges and looks to capitalize on long-term growth opportunities in the IT services and printing markets. Currently, HPQ carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' 7 Best Strong Buy Stocks (New Research Report)
Valued at $99, click below to receive our just-released report predicting the 7 stocks that will soar highest in the coming month.
Image: Bigstock
HPQ Soars 21% YTD: Should You Buy, Sell or Hold the Stock?
HP Inc. (HPQ - Free Report) has been performing well, with its shares gaining 21.1% year to date (YTD). Despite this YTD surge, HPQ has not kept pace with the Zacks Computer – Micro Computers industry's growth of 28.7%, the Technology Select Sector SPDR Fund (XLK - Free Report) ETF’s return of 24.3%, and the broader S&P 500’s 27.3% rise over the same period. The stock has also underperformed its peers, including Apple Inc. (AAPL - Free Report) and Dell Technologies Inc. (DELL - Free Report) , which have gained 28.2% and 61.8%, respectively.
YTD Price Return Performance
Image Source: Zacks Investment Research
The divergence in performance suggests that HPQ’s growth is driven more by specific strengths rather than broad market optimism. This price performance is a testament to its market resilience and strategic focus.
This gain reflects investor confidence in the company’s ability to navigate the dynamic landscape of the technology sector, which has been plagued by macroeconomic headwinds, including supply chain issues and slowing demand for personal computers (PCs). HPQ’s performance in 2024 is noteworthy because it underscores a targeted focus on profitability, cost efficiency and expansion into higher-margin areas like managed services and digital printing. This approach has helped the company outperform its peers in a challenging environment.
Given these factors, the prudent strategy for investors would be to hold the stock rather than buy or sell it at this juncture.
Strengths in HPQ’s Business Segments
HP’s strategic diversification across segments has been a significant driver of its performance. The Personal Systems segment, which includes PCs and workstations, remains a key revenue contributor. In the fourth quarter of fiscal 2024, HPQ reported 2.1% year-over-year growth in this segment’s revenues, driven by a 4% increase in Commercial PC shipments.
This segment’s resilience is critical given the broader downturn in the consumer PC market, which has been affected by prolonged shifts to remote work and budget cuts in corporate spending on IT infrastructure. The focus on higher-value products like commercial notebooks and workstations, which command premium pricing, underscores HP’s strategy to mitigate margin pressure from lower-priced consumer PCs.
The Printing segment also saw modest growth in the fourth quarter, up 0.8% year over year. HPQ’s focus on expanding its printing business through improved hardware and software solutions, such as enhanced security features, has allowed it to recover market share in a declining market. The growth in Consumer Printing net revenues (up 3%) and Supplies (up 2%) highlights the company’s success in stabilizing this traditionally volatile segment. This performance is crucial as it provides HPQ with a steady revenue stream that supports its efforts to drive profitability across its diversified portfolio.
HPQ’s Strategic Initiatives to Drive Future Growth
HPQ’s recent strategic initiatives are aimed at driving future growth in higher-margin businesses and diversifying revenue streams. The company’s push into managed IT services, for example, represents a major shift from its traditional hardware business. Managed services revenues grew 12% in the fourth quarter, signaling strong demand for HPQ’s IT infrastructure management solutions. This segment’s growth is bolstered by the increasing trend of digital transformation among businesses, which requires robust IT solutions that HPQ is well-positioned to provide.
Moreover, the growing interest in generative artificial intelligence (AI)-enabled PCs might give a fresh boost to HP’s PC demand in the years ahead. The company had previously stated that AI PCs could be a key growth driver beginning next year.
It has also forecasted that 40-60% of all PCs will be AI PCs in the next three years. To make the most of the growing opportunities in this category, HPQ has launched several AI PCs this year and plans to continue to expand its AI PC portfolio. Such initiatives bode well for HP’s growth prospects.
HPQ Sports Attractive Valuation
HP remains attractively priced. Its forward 12-month price-to-earnings (P/E) ratio of 10.18 is below the industry average of 28.21, indicating that the stock is trading at a relative discount.
Image Source: Zacks Investment Research
Near-Term Challenges for HPQ
HP is navigating several near-term challenges that could weigh on its performance. Weakness in the global PC market remains a significant concern, with Consumer PC shipments declining 3% year over year in the fourth quarter of fiscal 2024, reflecting cautious spending by consumers amid economic uncertainties. Although the Commercial PC segment showed growth, sustained demand remains uncertain.
The Printing segment also faces hurdles, with Commercial Printing revenues slipping 1%, signaling subdued enterprise demand. While Supplies revenues grew 2%, its long-term growth potential appears limited as businesses increasingly adopt digital documentation solutions.
Adding to these challenges, HPQ’s cautious guidance for first-quarter fiscal 2025 highlights macroeconomic pressures and extended sales cycles. The company projects non-GAAP earnings per share between 70 cents and 76 cents, indicating a year-over-year decline of 6-14%. Analysts have also turned cautious about its earnings growth potential in the near term as reflected by the downward revision in the Zacks Consensus Estimate.
Image Source: Zacks Investment Research
Conclusion: Hold HPQ Stock for Now
Given HPQ’s YTD performance, attractive valuation and strategic focus on diversifying its business segments, holding the stock remains the most prudent strategy. While HPQ has underperformed relative to the broader market this year, its efforts to transition into higher-margin businesses and expand its managed IT services footprint provide a solid foundation for future growth.
For now, HPQ’s diversified portfolio, emphasis on sustainability, and solid execution make the stock worth holding as it navigates near-term challenges and looks to capitalize on long-term growth opportunities in the IT services and printing markets. Currently, HPQ carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.