HP (HPQ) Falls More Steeply Than Broader Market: What Investors Need to Know

NEW YORK – Shares of technology stalwart HP Inc. (HPQ) took a significant downturn in the latest trading session, closing at $19.00 for a steep 4.09% loss. The decline starkly outpaced the broader market's modest pullback, signaling heightened investor apprehension surrounding the personal computer and printer giant ahead of its crucial earnings report. This move underscores a pattern of underperformance and growing concerns about the company's near-term trajectory.

While the S&P 500 registered a daily loss of 0.84% and the Dow Jones Industrial Average shed 0.34%, HP's sharp drop reflects company-specific anxieties rather than just market-wide sentiment. The tech-heavy Nasdaq, which fell 1.43%, also saw a less severe decline, placing HP's performance among the day's notable laggards.

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A Troubling Trend of Underperformance

The single-day sell-off is not an isolated event but rather the continuation of a challenging month for HP shareholders. The stock's recent performance paints a picture of a company struggling to gain traction in a market that has otherwise been rewarding for the technology sector.

• One-Month View: Over the past month, HP shares have plummeted 8.54%. This decline occurred during a period when the broader S&P 500 gained 1.8% and the Computer and Technology sector, HP's home turf, advanced by 1.75%. This divergence highlights a clear loss of investor confidence specific to HP.

• Market Disconnect: The stock's inability to participate in the recent market and sector-wide rally suggests that investors are pricing in significant headwinds, possibly related to weakening consumer demand for PCs and printers, or competitive pressures.

Spotlight on Upcoming Earnings

All eyes are now fixed on HP's upcoming quarterly earnings release, which will serve as a critical test for the company and its management. The report will provide the first concrete data to either confirm the market's fears or offer a much-needed narrative reversal. Wall Street analysts have set clear expectations for the quarter.

• Quarterly Earnings Per Share (EPS): The consensus estimate is for HP to report earnings of $0.78 per share. If achieved, this would represent a 5.41% increase compared to the same quarter last year, suggesting some potential for positive operational leverage.

• Quarterly Revenue: Analysts are forecasting revenue of $14.06 billion for the quarter. This figure would mark a 4.13% rise from the prior-year period, indicating expectations for modest top-line growth.

While these quarterly growth figures appear encouraging on the surface, they may also reflect a comparison to a weaker period in the previous year. The investment community will be scrutinizing not only whether HP meets these targets but, more importantly, the quality of the earnings and the outlook provided for the remainder of the year.

The Full-Year Outlook Dims

Pivoting from the quarterly snapshot to the full-year forecast, the picture becomes considerably more bearish. According to the Zacks Consensus Estimates, the anticipated growth in the upcoming quarter does not extend to the full fiscal year.

• Full-Year EPS: Analysts project full-year earnings of $3.03 per share, which would be a decline of 2.88% from the previous year.

• Full-Year Revenue: The consensus estimate for full-year revenue stands at $55.16 billion, representing a slight contraction of 0.25% year-over-year.

This forecast of a full-year decline in both revenue and profitability is a major red flag for investors. It suggests that any strength in the upcoming quarter may be short-lived and that underlying structural challenges—such as a saturated PC market or margin pressure in the printing division—are expected to weigh on the company's performance.

Analyst Sentiment and a Bearish Rating

A key leading indicator of stock performance is the direction of analyst estimate revisions. Recent trends for HP have been negative, signaling growing pessimism among financial professionals who cover the stock.

• Estimate Revisions: The Zacks Consensus EPS estimate has seen a 0.26% downward revision over the past month. While the percentage is small, the negative direction reflects that, on balance, analysts are tempering their expectations for HP's profitability.

• Zacks Rank: This negative sentiment is encapsulated in HP's Zacks Rank of #4 (Sell). The Zacks Rank is a quantitative model that has a strong, third-party audited track record of identifying stocks poised to underperform. A #4 rating indicates that analyst estimate revisions are negative and that the stock is expected to lag the market over the next one to three months.

A Deep Dive into Valuation: Value or Trap?

At first glance, HP's valuation appears attractive. However, a closer look at growth-adjusted metrics reveals potential dangers.

• Forward P/E Ratio: HP trades at a Forward Price-to-Earnings (P/E) ratio of 6.55. This is a significant discount to its industry's average of 10.51, making the stock appear "cheap" relative to its peers.

• The PEG Ratio: A more sophisticated metric, the Price/Earnings-to-Growth (PEG) ratio, tells a different story. The PEG ratio factors in a company's future earnings growth. HP's PEG ratio is 3.68. A PEG above 1.0 is often considered high, suggesting the stock's price may not be justified by its expected growth rate. Compared to the industry average PEG of 1.53, HP's figure appears alarmingly high.

This combination of a low P/E and a high PEG often points to a classic "value trap"—a stock that looks inexpensive on paper but whose price is low for a good reason, namely, poor growth prospects.

Industry-Wide Headwinds

Finally, HP is not operating in a vacuum. The entire Computer - Micro Computers industry is facing challenges.

• Industry Rank: The industry currently holds a Zacks Industry Rank of 207 out of more than 250 industries, placing it in the bottom 16%. This poor ranking indicates that the majority of companies within this group are seeing negative earnings estimate revisions.

• Macro Context: This weakness reflects broader trends, including the post-pandemic normalization of PC demand, intense competition, and macroeconomic uncertainty impacting consumer and enterprise spending on hardware.

What Investors Need to Know Now

HP stands at a crossroads. The stock is weighed down by a confluence of negative factors: significant recent underperformance, downward-trending analyst estimates, a bearish quantitative rating, and concerning valuation metrics when growth is considered.

The upcoming earnings report is therefore a moment of truth. Investors should look beyond the headline numbers and focus on management's commentary regarding several key areas:

1. PC Market Outlook: Is there a clear path to recovery in the Personal Systems division, or is demand expected to remain soft?
2. Printing Profitability: How is the high-margin supplies business performing, and what are the strategies to protect it?
3. Forward Guidance: Does the company's forecast for the next quarter and the full year confirm the current bearish consensus, or can it provide a compelling reason for optimism?

Until HP can deliver a convincing answer to these questions and demonstrate a clear strategy for returning to sustainable growth, investors are likely to remain on the sidelines, treating the stock with the caution it currently warrants.