HP Inc (NYSE:HPQ) released fiscal first-quarter earnings last week, and unsurprisingly, they weren’t so hot. Profits fell 16%, while sales were down 12% for HPQ stock.
But Wall Street wasn’t really expecting much out of HP Inc in its first quarter as an independent company after a spinoff from Hewlett Packard Enterprise Co (NYSE:HPE) late last year. And oddly enough, even after the ugly report, HPQ stock is actually up slightly from its mid-February lows.
Where things go from here, however, is anybody’s guess. While the secular decline in both PCs and printer use is undeniable, it’s also hard to argue that HPQ stock is valued like a growth stock. Furthermore, the negative narrative around a “post-PC age” has been done to death, so the troubles of this electronics giant are hardly a secret.
So what’s the deal? Is HPQ stock worth a flier here, or is it doomed to a slow death after its spinoff?
Everyone Loves to Hate HPQ Stock
Between HPQ and HPE stock, it’s obvious that the former was the less attractive of the pair. The IT-focused Hewlett Packard Enterprise is down only 3% since late November, while PC arm HP Inc has dropped roughly 25%
And as earnings show, there are serious pressures within the unit on both the top and bottom lines. Although the company is the No. 2 manufacturer of PCs in the world, with about 19% of global shipments — behind only China’s Lenovo Group Limited (ADR) (OTCMKTS:LNVGY), which commands about 20% market share — the headwinds for the industry at large just seem too much.
And adding insult to injury, HP Inc is headquartered in the U.S. and thus has to deal with the currency headwinds of a strong dollar on all its bookings overseas.
It all adds up to pain for shareholders. However, it’s hard to argue that the pessimism hasn’t been priced into HPQ stock given it has a rock-bottom forward price-to-earnings ratio of just 6.6 as of this writing — and a very sustainable 4.6% dividend to boot!
Everybody loves to hate HP Inc. But given the bargain valuation, the big dividend and the overly negative sentiment, you have to wonder if things can really get worse than what everyone already expects.
HP Inc Has a Plan
Now, I know it’s always dangerous to get sucked in by a battered tech company’s overtures about reinvention. BlackBerry Ltd (NASDAQ:BBRY) has been talking about that for years, and in fact just a few years ago we saw HPE CEO Meg Whitman offer up a much-touted turnaround plan that did nothing to help what used to be joined HPQ and HPE operations.
But I have to admit, I like what the new HP Inc is saying.
For starters, CEO Dion Weisler is not some outsider looking to do weird things with HPQ stock. He joined the PC unit in 2012, after stints at rival Lenovo and discount hardware firm Acer Inc. before that. And based on his industry knowledge, he knows that it’s a fool’s errand to compete on what he calls “low-calorie” sales; instead, under Weisler, HP Inc is pushing for profitable sales via decent hardware with an emphasis on business use instead of chintzy laptops that hope to compete on price alone.
That’s certainly the way to go, because these days, low-end consumers are the least likely to think they need both a mobile device AND a laptop anyway.
Furthermore, innovations at HP Inc revolve around the core business instead of trying to go toe-to-toe with mobile. Take the recently-introduced Elite X3, basically a big “phablet” smartphone that can be docked to essentially become a PC on the go.
In short: It’s function first at HPQ, and that has me encouraged.
I don’t really buy into the hype about 3-D printing efforts, or any hopes of a big uptick in enterprise spending that could prop up HP Inc in the near future. But I do think that sales will stabilize; that new efforts will connect in a modest way; and that the bargain valuation and big dividend make HPQ stock a good long-term buy for patient investors.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
