HP Inc.’s (HPQ - Get Rating) broad product portfolio includes personal computing devices, and imaging and printing products. It also offers 3D printing solutions. The stock has lost 14.5% over the past month and is currently trading 15.5% below its $36 all-time high, which it hit on May 10. The price decline can be attributed primarily to investors’ speculation that the growth of personal computers, which has peaked amid the COVID-19 pandemic, could be slowed by the global semiconductor chip shortage, which  could be detrimental to HPQ’s growth.

Even though HPQ may experience a temporary slowdown due to the chip shortage, its fundamentals are strong, and the company has a strong foothold in the computer hardware space. It had a stellar performance in its fiscal second quarter (ended April 30, 2021) with double-digit top- and bottom-line growth.

The company also completed the acquisition of HyperX on June 1, which is expected to drive growth in its Personal Systems business, where gaming and peripherals are fast-growing segments. HyperX’s award-winning product portfolio spans a range of gaming peripherals, including headsets, keyboards, mice, mouse pads, USB microphones, and console accessories. The acquisition supports HP’s strategy to drive growth in its Personal Systems business, where gaming and peripherals are attractive segments.

HPQ is well-positioned to gain from the adoption of a hybrid working environment by businesses for the foreseeable future. So, we think it could be wise to buy HPQ shares at the current price level.

Here’s what I think could influence HPQ’s performance in the near term:

Revenue Growth Across Major Segments

For its  fiscal second quarter, ended April 30, 2021, HPQ’s net revenue was  $15.88 billion, representing a 27.3% year-over-year rise. The company’s revenue from its notebooks segment increased 47.3% year-over-year to $7.49 billion, while its revenue from its workstations segment came in at $407 million, up 6.5% sequentially. HPQ’s revenue from its  printing segment increased more than 28% year-over-year to $5.32 billion.

The company’s non-GAAP net income for the quarter increased 56.3% year-over-year to $1.16 billion. Its non-GAAP EPS rose 82.4% from the same period last year to $0.93.

Consistent Product Launches

HPQ introduced HP Indigo Secure on May 17, 2021. It is a  suite of innovative  security and brand protection solutions aimed at helping security printers and print service providers to protect their consumers from counterfeiters and other product threats. It introduced HP Wolf Security on May 12, 2021, to provide security against cyberattacks. And it  announced the expansion of HP+ on April 27, 2021. HP+  is powered by a new Smart App cloud ecosystem.

Reasonable Valuation

In terms of forward non-GAAP P/E ratio, HPQ’s 8.73x is 66.5% lower than the 26.07x industry average. The stock’s forward EV/S and P/S of 0.64x and 0.58x, respectively, are lower than the 4.24x and 4.04x industry averages.  Its forward non-GAAP PEG of 0.70x is also 61.5% lower than the 1.82x industry average.

Favorable Analyst Estimates

Analysts expect HPQ’s revenue to increase by 5.1% for the quarter ending October 31, 2021, and by 12.1% in  2021. The company’s EPS is expected to increase 71.4% for the current quarter, ending July 31, 2021, 30.6% for the quarter ending October 31, 2021, and 53.5% in  2021. Also, its EPS is expected to grow at a 17% rate per annum over the next five years.

Wall Street analysts expect HPQ to hit $33.03 in the near term, which indicates a potential 8.6% upside. Also,  of the 17 analysts that have rated the stock, three rated it Strong Buy and five rated it Buy.

POWR Ratings Show Promise

HPQ has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HPQ has an A grade for Value, which is in sync with its lower-than-industry valuation ratios. It has a B grade for Sentiment, in keeping with favorable analyst sentiment.

The stock has a B grade for Momentum, consistent with its 56.4% gains over the past nine months and 23.7% returns so far this year.

It has a B grade for Quality also. This is justified given its trailing-12-month net income margin and return on total assets of 6.05% and 10.70%, respectively, which are higher than the 4.69% and 3.19% industry averages.

Of the 46 stocks in the B-rated Technology – Hardware industry, HPQ is ranked #3. The stock is also rated for Growth and Stability. Click here to access all HPQ ratings.

If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.

Bottom Line

Even if HPQ experiences a temporary slowdown in sales due to the semiconductor chip shortage, its business is expected to grow on the back of expanding product portfolio and solid financials. It is also trading at a discount to its peers. So, we think it could be wise to scoop HPQ’s shares now.

HPQ shares fell $0.06 (-0.20%) in premarket trading Wednesday. Year-to-date, HPQ has gained 25.06%, versus a 13.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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