HP Inc HPQ

Five years of moves

HPQ +14.0% since 2021-10-22, against the median of DELL, LOGI, XRX +15.8%, Technology (XLK) +135.2% and the S&P 500 (SPY) +78.3%. Numbered dots mark inflections (peaks and troughs); shaded bands mark divergences from the sector or market.

HP is a cheap, high-return PC and printer maker whose buyback is the live catalyst, but a memory-driven PC slump is the threat.

HP sells PCs and printers, and its shares are up 14.0% over five years, against 15.8% for peers, 135.2% for the technology sector fund and 78.3% for the S&P 500. Today they fell 9.6% after Intel warned memory shortages are choking PC demand. The question is whether the 7.9× multiple already prices that in. The numbers say cheap, high-return and cash-generative, with buybacks the live catalyst, but PC demand is the risk.

Definitions

Acquirer's Multiple®

Enterprise value ÷ operating income (trailing 12 months). What an acquirer would pay for the whole business against what it earns before interest and tax. Lower is cheaper.

Enterprise value

Market cap at today's price, plus debt, preferred stock and minority interests, less cash.

Operating income

Trailing 12 months, after depreciation and amortization.

Operating earnings yield

Operating income ÷ enterprise value: the Acquirer's Multiple turned upside down.

Free cash flow yield

Trailing 12-month free cash flow (cash from operations less capital spending) ÷ market cap.

Shareholder yield

Trailing 12-month dividends plus net buybacks (shares bought back less shares issued) ÷ market cap. Dividend yield and buyback yield are its two parts.

Return on assets

Trailing 12-month operating income ÷ total assets at the latest quarter.

Net debt : market cap

Debt less cash, as a share of market cap. Negative means net cash.

E(r)

Expected annual return if the Acquirer's Multiple doesn't change. It has three parts: return on assets (what the business earns on what it owns); incremental growth (return on assets × the reinvestment rate, where the reinvestment rate is five-year average capital spending ÷ five-year average total assets: what reinvested capital adds); and shareholder yield (what is paid out through dividends and buybacks). E(r) = return on assets × (1 + reinvestment rate) + shareholder yield.

10-year Treasury

The latest monthly 10-year US Treasury yield, the risk-free rate the yields are compared with.

Percentiles

Where the stock sits among investable US stocks (price above $3, market cap above $75M, average daily trading above $850,000, no ADRs or MLPs), updated each week. Each is the percentile of the number itself: for the Acquirer's Multiple (here EBIT ÷ enterprise value) and debt (total debt ÷ book equity), lower is better; for yields, five-year average return on assets and market cap, higher is bigger. Stocks outside the investable set, such as ADRs, are placed against it.

Industry and sector

FactSet RBICS industry. Industry and sector medians are the middle investable stock's percentile. Industry history is that median each quarter since 1999; the usual range is the middle 80% of quarters.

Turning points

Inflection points are the peaks and troughs where the stock's trend reversed by about 25% or more on weekly closes; each is compared over the move that followed. Divergences are stretches where the stock pulled away from its sector fund or the S&P 500 by about 20% or more. Each is set against its peers' median, its sector fund and the S&P 500 over the same window. Driver: Market if the market moved with it (same way, at least half as far) and so did its peers or sector; Sector if only its peers or sector did; Company otherwise.

Value-trap grades

Return on assets: Strong at 10% or more, Mixed at 5% or more. Net debt : market cap: Strong at 30% or less, Mixed at 100% or less. Free cash flow yield: Strong at 10% or more, Mixed at 5% or more. Shareholder yield: Strong at 8% or more, Mixed at 3% or more.