3 Oversold Computer Hardware Stocks Too Cheap to Ignore

NYSE: HPQ | HP Inc. News, Ratings, and Charts

HPQ – The computer hardware industry has been under pressure so far this year due to the Fed’s hawkish tilt and geopolitical tensions, including the Russia-Ukraine war. Nonetheless, we think it could be profitable to invest in fundamentally solid computer hardware companies HP (HPQ), Western Digital (WDC), and Lenovo Group (LNVGY) on the dip in their stock prices. So, let’s discuss.

The U.S. tech stocks have been experiencing steep price declines since the beginning of the year. Amid 40-year high inflation rates, growing concerns regarding forthcoming interest rate increases, and an intensifying semiconductor shortage, investors have been liquidating overvalued tech growth stocks. Furthermore, the escalating conflict between Russia and Ukraine has rattled the fragile stock market.

The bearish sentiment surrounding the tech industry is evident in the tech-heavy NASDAQ Composite Index’s 18% decline year-to-date. Approximately 70% of the tech stocks listed on U.S. exchanges have declined in price so far. However, computer hardware companies are expected to maintain their growth trajectory through the coming months due to strong demand amid a continuing remote culture.

Despite the macroeconomic headwinds, fundamentally strong computer hardware stocks HP Inc. (HPQ), Western Digital Corporation (WDC), and Lenovo Group Limited (LNVGY) are expected to witness robust growth in the long term. Thus, we think the recent dip in the price of these stocks could be an ideal entry point.

HP Inc. (HPQ)

HPQ in Palo Alto, Calif., develops, manufactures, and markets personal computing and other access devices, printing products, and related solutions and services in the U.S. and internationally. The company operates in three segments: Personal Systems; Printing; and Corporate Investments. HPQ serves individual consumers, small-sized and medium-sized businesses, and large enterprises.

On Feb. 23, 2022, HPQ introduced the HP LaserJet Tank MFP 2600s, which is designed for entrepreneurs and small business owners by streamlining print management. This launch is expected to create new revenue streams for the company.

On Feb. 10, 2022, HPQ acquired Choose Packaging, a packaging development company, to scale up its technology. This acquisition might promote sustainability, expand the addressable market, and boost revenues.

In its  fiscal year 2022 first quarter, ended Jan. 31, 2022, HPQ’s net revenue increased 8.8% year-over-year to $17.03 billion. HPQ’s earnings from operations grew marginally year-over-year to $1.50 billion. The company’s net earnings rose marginally from the same period last year to $1.20 billion. And its  net earnings per share increased 19.6% year-over-year to $1.10.

HPQ is relatively undervalued versus its peers. In terms of forward non-GAAP P/E, HPQ is currently trading at 8.47x, which is 55.9% lower than the 19.20x industry average. Its 0.58 forward Price/Sales multiple is 82% lower than the 3.22x industry average. Its forward Price/ Cash Flow and EV/EBIT ratios of 6.93 and 7.42, respectively,  compare with industry averages of 18.40 and 16.56.

Analysts expect HPQ’s revenue for its  fiscal 2022 second quarter, ending April 31, 2022, to come in at $16.21 billion, representing a marginal rise year-over-year. The Street expects the company’s EPS for the current  quarter to come in at $1.05, representing a 13.2% increase year-over-year. The company has an impressive earnings surprise history;  it surpassed the consensus EPS estimates in each of all the trailing four quarters.

The stock has declined 6% in price year-to-date and 6.8% over the past month. It closed yesterday’s trading session at $35.41.

HPQ’s POWR Ratings reflect this promising outlook. HPQ has an overall B rating, which translates to Buy in our proprietary system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

HPQ has a B grade for Value and Quality. Within the B-rated Technology – Hardware industry, it is ranked #7 of 45 stocks.

To see additional POWR Ratings (Momentum, Stability, Growth, and Sentiment) for HPQ, click here.

Western Digital Corporation (WDC)

WDC in San Jose, Calif., develops, manufactures, markets, and sells data storage devices and solutions in the U.S., Europe, the Middle East, Africa, Asia, and internationally. The company provides client devices, flash-based embedded storage products for portable devices, data center devices and solutions, and removable cards for consumer devices. WDC sells its products under the G-Technology, SanDisk, and WD brands.

WDC’s net revenue increased 22.6% year-over-year to $4.83 billion in its fiscal year 2022 second quarter, ended Dec. 31, 2021. Its gross profit improved 64.9% year-over-year to $1.58 billion. WDC’s operating income increased 157% year-over-year to $882 million. The company’s net income has grown 242% year-over-year to $724 million. And its  earnings per share rose 233% year-over-year to $2.30.

LMT is trading at a discount to its peers. In terms of forward non-GAAP P/E, WDC is currently trading at 6.27x, which is 67.3% lower than the 19.20x industry average. Its 6.76 forward EV/EBIT multiple is 59.2% lower than the 16.56x industry average.

The $4.40 billion consensus revenue estimate for its fiscal 2022 third-quarter, ending March 31, 2022, represents 6.2% year-over-year growth from the same period in 2021. The $1.53 consensus EPS estimate for the current quarter represents 49.5% year-over-year growth. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.

Shares of WDC have slumped 28.5% in price year-to-date and 21.2% over the past three months. WDC closed yesterday’s trading session at $46.61.

WDC’s POWR Ratings reflect this strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.

It has a grade of A for Growth and a B grade for Value. It is ranked #11 of 45 stocks in the B-rated Technology – Hardware industry.

Click here to see WDC ratings for Momentum, Sentiment, Stability, and Quality.

Lenovo Group Limited (LNVGY)

LNVGY is an investment holding company in Beijing, China. It develops, manufactures, markets, and sells technology products and services worldwide. The company provides commercial and consumer personal computers, servers and workstations, mobile internet devices, IT products, storage products, networking products, replacement parts, computer hardware, and software systems repair services.

In January, LNVGY unveiled Lenovo TruScale High-Performance Computing as a Service (HPCaaS), which delivers the power of supercomputing to organizations through a cloud-like experience. This offering might expand LNVGY’s customer base and boost its profitability.

In its fiscal year 2022 third quarter, ended Dec. 31, 2021, LNVGY’s revenue increased 16.7% year-over-year to $20.13 billion. LNVGY’s gross profit increased 20.4% year-over-year to $3.36 billion. And LNVGY’s operating profit grew 33% year-over-year to $932 million. Its profit for the period rose 58.2% from its  year-ago value to $682 million. And the company’s earnings per share increased 59.7% from its  year-ago value to $0.05.

LNVGY is relatively undervalued versus its peers. In terms of forward Non-GAAP P/E, LNVGY is currently trading at 6.17x, which is 67.9% lower than the 19.20x industry average. Its 0.17 forward Price/Sales multiple is 94.8% lower than the 3.22x industry average. And LNVGY’s 3.31 forward EV/EBITDA ratio  compares with the 13.00 industry average.

The $17.48 billion consensus revenue estimate for its fiscal 2022 fourth-quarter, ending March 31, 2022, represents 11.8% year-over-year growth.

LNVGY stock has declined 14.6% in price year-to-date and 21% over the past year and closed yesterday’s trading session at $20.11.

LNVGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

It has a grade of A for Value and B for Growth, Stability, and Sentiment. Within the B-rated Technology – Hardware industry, it is ranked #2 of 45 stocks.

To see additional component grades of POWR Ratings (Quality and Momentum) for LNVGY, click here.

HPQ shares were trading at $35.56 per share on Tuesday morning, down $0.10 (-0.28%). Year-to-date, HPQ has declined -5.60%, versus a -12.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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