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HP Inc.NYSE:HPQ) is a leading manufacturer of personal computers, printers and other related products. The stock has underperformed other tech stocks and is considered as boring as Microsoft (MSFT).) was just a few years ago. However, it looks like things could get a lot more exciting in the coming years, and what's confirming this new potential excitement is the recent revelation that a hedge fund billionaire is buying the stock. Let's take a closer look:
Chart
As the chart below shows, the stock has had a recent pullback that is potentially an ideal buying opportunity. The stock was trading at around $31 in March, but is now trading at around $28. The 50-day moving average is $29.16 and the 200-day moving average is $28.85. It is worth noting that since Earlier this year the 50-day moving average crossed the 200-day moving average, a bullish “golden cross” formation has appeared on the chart. However, there is a risk of losing this bullish formation if the stock does not recover above $29 in the coming weeks.
Stockcharts.com
Income Statement and Balance Sheet
Analysts expect the company to earn $3.43 per share in 2024, on revenue of $53.65 billion. In 2025, earnings are expected to grow to $3.65 per share, with revenue of $55.6 billion. Estimates for 2026 are $3.78 per share, on revenue of $57.13 billion. These projections suggest just over 8 times the earnings ratio for 2024, and even less going forward. That's a pretty low price for a leading tech company to be trading at, especially since many tech stocks are trading for huge multiples, even ones that aren't growing as fast as Apple. (AAPL).
As for the balance sheet, the company has about $9.301 billion in long-term debt and $2.42 billion in cash. It's a solid balance sheet, but I'd like to see more debt repayments to make it even stronger.
A hedge fund billionaire is buying.
David Einhorn is a hedge fund billionaire who recently revealed that he is buying shares of HP, Inc. Its acceleration comes from AI capability, which can help speed up the PC upgrade cycle. The Seeking Alpha article suggests that it has an average price of $30.76, which is about 10% higher than the current share price. David Einhorn believes that HPQ can buy back 30% of the shares in the next 3 years and the article states:
“The most exciting opportunity is through a potential AI-driven PC adoption cycle, driving higher unit prices and a more robust PC market recovery,” Einhorn added. “While we've spoken with experts who are split between being excited and skeptical on the AI PC cycle, we don't believe the share price currently reflects any optimism.”
PC upgrade cycle
The PC upgrade cycle can be huge and driven by the desire for a PC with new AI-embedded features that are expected to be quickly available on new PCs. But the PC upgrade cycle could still gain significant traction in 2025, as Microsoft ( MST ) has announced that it will retire Windows 10 on October 14, 2025, and support for Windows 11 will end on November 11, 2025. will go Between the advent of new AI-enabled PCs, and the impending end of support for Windows 10 and 11, it will make a lot of sense for many businesses and consumers to buy a new PC in 2025.
Some analysts see HP, Inc. in the second half of 2024. Expect strong sales for, driven in part by back-to-school shopping. It also comes at a time when some AI-powered PCs should start becoming more readily available. I think all of this suggests that it makes strategic sense to buy this stock on any pullbacks during the first half and it could reap rewards in the second half of this year and beyond.
The PC market is expected to grow by 7% in 2024 and 10% in 2025. This is a great tailwind for this company going forward.
Dividends and share buybacks
HP, Inc. Pays a quarterly dividend of $0.2756. That's just over $1.10 per share on an annualized basis and provides a yield of about 4%. The dividend has more than doubled since 2018, and it has room to grow thanks to a low payout ratio of 32%. Apart from dividend, the company is also shareholder friendly in terms of share buybacks, as shown below:
HewlettPackard.com HewlettPackard.com
Potential downside risks
The PC business is competitive and does not have high margins like other tech businesses like software. However, the company has been dealing with these pressures for years and is leading the industry. A major recession is perhaps the biggest potential downside risk, as it would reduce both consumer and business IT spending.
The Company is party to a number of patent and other legal claims that are pending, which may be a potential downside risk to consider. It also has many other competitors who can take market share or reduce profit margins through discounting. For example, Dell Technologies, Inc. (DELL) is expected to be a competitive threat with respect to AI-powered computers, and may be difficult to challenge, especially for small to medium-sized businesses. However, I understand that HP, Inc. Will sell very well to consumers for home use and students. HP, Inc., also faces challenges from foreign exchange risks that may present downside risks in terms of product prices and financial assets held in foreign countries.
Abstract
HP, Inc. has many positives, has a very low price-to-earnings ratio (suggests a low valuation), has strong growth potential with the PC upgrade cycle, and could be a big beneficiary with AI. Is. It also pays a dividend of around 4% with a history of growth. With such a huge yield, this stock is offering income that is not much lower than the payouts of money market funds. With interest rate cuts likely over the next couple of years, this stock could see upside as investors become more hungry for future yield.
With the company having a clear AI tailwind and other positives, it seems only a matter of time before the stock is re-rated to an earnings multiple, and that Can provide about 4% yield as well as excellent. Total return in coming years. With all these positives, it's easy to see why this stock has caught the attention of hedge fund billionaires.
No warranties or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.