Why Is It The Right Time to Invest in HP?

By | January 18, 2014

Hewlett-Packard is one of the most reputed names in the computer hardware business. After a failing trail of CEOs, Meg Whitman has ignited a ray of hope and the company has been on its way to transform its business model. After hitting the rock bottom in November 2012, the company has made a fair comeback with its share price ending 2013 at $28.34.

Why Is It The Right Time to Invest in HP?

Why Is It The Right Time to Invest in HP?

According to the earnings released in November 2013, the company had a net income of $1.4 billion against the previous year’s loss of $6.85 billion. It means that the company has generated a profit of $0.73 per share against a loss of $3.49 per share last year. In the last one year, January 2013 to January 2014, the shares have improved by 67.58% indicating the faith investors have in Whitman’s leadership.

HP’s Performance in different segments

  • PC market: According to Gartner, HP is the leading PC vendor in the U.S. with a 26.9% share in third quarter of 2013 followed by Dell (21.0%) and Apple (13.4%). However, the company is sacrificing its profit for maintaining their market prominence. Its profit fell to $259 million according to the November 2013 earnings.
  • Printing market: HP controls as much as 40% of the printing market with an excellent penetration in residential as well as commercial customers. In the third quarter of 2013, the printing segment has shown some improvement with the earnings of $1.07 billion, although the revenue fell by 1% to $6.04 billion. However, real problem is the low profit margin on their products and the company has always tried to cover it with ink supplies. It might get harder for the printing segment to stay productive with the increasing competition.
  • Enterprise Group: Enterprise Group had slight improvements with revenue of $7.59 billion and a profit of $1.1 billion. With its competitors such as Dell and IBM making way to the large profit-margin sectors, HP has to work on growing sectors including big data, cloud computing, and security.

According to the speculations, HP’s shares are trading at multiple of 7 considering next year’s earnings. It is much cheaper than Microsoft’s 14 valuation, IBM’s 10.6 and Oracle’s 12 valuation. More than a dozen financial firms have raised the targets of HP and the share might even hit $30.00 in near future.

HP heads back to the Smartphone Market

As a part of its reforms, the company announced two new Smartphone devices that are to be launched in the growing India market. The company did not find much luck with the previous versions of Smartphone devices including its Palm tablet. However, the new offerings from HP, called “Phablets”, are specifically aimed at the growing demand of Smartphone-cum-tablet in the developing markets. These devices will have screens bigger than 5 inches but less than the 10-inch laptops. HP is calling these devices as “voice tablets” and is planning to offer two different versions including- Slate6 VoiceTab (6-inch screen) and Slate7 VoiceTab (7-inch screen). HP has received an excellent response from the first 50 retailers who received a preview of these devices. Launching its Phablets in India will allow HP to compete in one of fastest growing Smartphone markets.

Whitman is undoubtedly one of the best CEOs of the corporate America and with its new product offerings, HP is expected to turn the tide soon enough. HP shares are available at a cheap rate and the chances of growth are enormous with Whitman making some tough decisions. Considering the progress HP has made within a year, the shares may not remain cheap for longer and now is the best time to get these shares in your portfolio.

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