Should Investors Reassess HP After 26% Stock Drop and Focus on Sustainability?
Thinking about HP and whether it could be a value opportunity? You are not alone, as many investors are taking a closer look at what the numbers reveal.
HP’s stock has seen some notable moves lately, falling 2.3% over the past week and dropping 26.2% year-to-date, signaling a shift in investor perception.
Recent headlines suggest fresh strategic moves by the company, such as enhanced investment in sustainable technologies and a revamped product lineup targeting enterprise customers. These initiatives have sparked discussion about HP’s long-term competitiveness and have contributed to renewed market volatility.
On our valuation checks, HP scores 5 out of 6 for being undervalued. As we break down the various valuation approaches, we will also spotlight a unique way to think about fair value that you might not have considered, so keep reading.
A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those back to their present-day value. This approach helps investors gauge what a business could be worth today, based on its expected future performance.
For HP, the DCF model uses a two-stage Free Cash Flow to Equity method. The company’s latest reported Free Cash Flow stands at $3.01 billion. Analyst forecasts suggest HP’s annual cash flows will remain robust over the coming years, with projections in 2026 at about $3.42 billion and decreasing to $2.7 billion by 2029, before being further extrapolated by Simply Wall St for the following years.
Based on these projections, the DCF model estimates HP’s intrinsic fair value at $38 per share. This is approximately 36.9% above the current market price, indicating that the stock may be considerably undervalued compared to what future cash flows suggest it should be worth.
For profitable companies like HP, the Price-to-Earnings (PE) ratio is often the most direct way to judge whether the stock price reflects its true earning power. The PE ratio tells investors how much they are paying for each dollar of earnings, which is especially useful when the company generates consistent profits.
However, what makes for a “normal” or “fair” PE ratio can vary widely depending on growth expectations, risk profile, and industry trends. Generally, higher growth and lower risk justify a higher PE, while lower growth or greater uncertainty warrant a lower multiple.
Currently, HP trades at an 8.5x PE ratio. This is strikingly lower than the Tech industry average of 21.3x and also far below its closest peers at 61.4x. At first glance, this suggests the market is pricing HP at a significant discount compared to similar companies.
Rather than comparing HP only to the industry or its peers, Simply Wall St uses a “Fair Ratio,” a proprietary measure that calculates what PE multiple is justified once you factor in HP’s earnings growth, profit margin, scale, and risk profile. This approach accounts for the company’s unique story rather than simply benchmarking against others that may not share similar prospects or risks.
For HP, the Fair Ratio is estimated at 27.0x. This means investors would typically expect to pay significantly more for its earnings given its characteristics. With HP trading at just 8.5x, there is a notable gap, pointing to a stock that is materially undervalued based on these fundamentals.
Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a straightforward, accessible tool that allow you to connect your own view of a company’s future, including its story, prospects, and risks, with practical financial forecasts and a clear fair value estimate.
With Narratives, you can move beyond just comparing numbers by creating or choosing a scenario that links HP’s business outlook to its future earnings, revenue, and margins. This results in a fair value that reflects your perspective. This isn’t just theory; millions of investors use Narratives on Simply Wall St’s Community page, where you can see, discuss, and update these dynamic stories as new information arrives, whether from news, earnings, or market shifts.
By using Narratives, you can easily decide when to buy or sell simply by comparing the fair value generated by your chosen scenario to the current market price. For example, some investors may see HP’s strength in AI PCs and cost reduction driving a price target as high as $30, while others who focus more on risks like declining print markets view $25 as fair. Narratives can help you act confidently on your unique investment thesis, grounded in real data and updated insights.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
