Is Hewlett-Packard Company (HPQ) Really on Its Way Back?

Page 1 of 2

Over the past three months, you’d be hard-pressed to find a hotter stock on the market than that of beleaguered tech giant Hewlett-Packard Company (NYSE:HPQ) . That’s not a typo. Since hitting bottom at $11.35 per share on Nov. 20, the stock has shot up 85% to Friday’s close at $21. Investors are beginning to ask: Is the company back?

Hewlett-Packard Company (NYSE:HPQ)Remarkably, I’ve seen articles suggesting that this stock can double in a few years, while calling HP a “fallen angel” that can soon take on Apple Inc. (NASDAQ:AAPL) and the rest of the tech world by storm. Really? Now, while the stock’s recovery has indeed been remarkable, let’s not get carried away just yet. Sudden shift in equity sentiment is no indication of success. And nor does it dictate where this company is going. HP still has to execute. And so far, management has not shown that it is capable of realizing any value the business still has left.

How well is Whitman’s “fix and rebuild” progressing?
This is what investors have to ask themselves before wondering if the company is back. Investors still forget that HP is in the midst of a five-year “fix and rebuild” plan that CEO Meg Whitman told CNBC about several months ago. For that matter Whitman also advised that investors should not expect to see revenue growth in any segment (except software) until 2014 when new products hit the market.

Although there’s been some progress, and the company has improved its balance sheet, which is now generating as much as $4.1 billion in operating cash flow, I can’t say that this has been enough to spur an 85% run-up in the stock. Rather, a case can be made that HP didn’t deserve such a depressed valuation and the stock was too cheap relative to book value. Essentially, the Street corrected its mistake, which happens all the time.

However, strictly from an operational perspective, first-quarter earnings results suggest that the company is still missing some opportunities. Revenue arrived at $28.4 billion, falling 6% year over year and 5% sequentially. Revenue was down across all segments, which was not a surprise; Whitman had already advised that this would be the case.

The PC business dropped 8% year over year and 6% sequentially. But the rate of the drop was 6% slower than in Q4 (14%). So HP’s new line of ultrabooks could have had some impact. If no news is good news, the rest of the segments did OK. That is to say, they were not any worse off than before. So for a stock that was trading on little-to-no expectations, investors rewarded HP with a “less bad” reaction, which is what’s driving the shares today.

I don’t think there is more near-term upside to these shares. Granted, the “less bad” quarter was rewarded. And HP’s fundamental position assures the company’s viability. But there are still two major problems that management has failed to address. First, the company’s hardware business is not going to stop eroding.

HP doesn’t know how to stop the bleeding. For that matter, there has been no indication that it’s a priority. HP will see more established players like NetApp Inc (NASDAQ:NTAP) , which continues to dominate storage, steal market share. I once pegged NetApp as a great acquisition candidate for Oracle Corporation (NASDAQ:ORCL) , but for the same reasons, HP should make this same consideration.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!