Value Stocks would help us to Survive a Possible Recession: HP Inc.
HPQ stocks
have lost 15% since the beginning of 2022, much better that younger and popular
tech companies that lost 40-50% over the same period. More interesting, this
year became the first in the company’s history when its stock yield
outperformed its peers. The most attractive for HP is its financial performance
as its forward P/E ratio was at 8.6, which is much better than other companies
. Shareholders are getting regular dividends with the annual dividend yield at
2.7%. So, why are HP stock prices dropping?
The main
generator of money is the personal computer business. The sales of personal
computers dropped by 17% year-on-year in the Q2 2022. However, the revenue from
this segment rose by 9% year-on-year to $11.5 billion thanks to cutting costs
and rising retail prices on personal computers. Corporates are buying more
computers and boosting the demand by 18% year-on-year, while sales to
individuals dropped by 6%.
Printers
are responsible only for one third of the company’s revenues and 50% of its
profit. This segment has been contracting for some years and the last quarter
was not an exclusion as revenues dropped by 7% year-on-year to $5 billion. This
drop may continue as more companies are no longer conducting their business
practices on paper. Moreover, public presentations are getting more digital as
they are delivered and distributed online. This is worrying considering the high
margin of the segment.
HP stocks
may not perform to the upside aggressively as they are more appropriate to
shelter turbulent times. HP operational profit is almost the same compared to
Q2 2021 - $1.444 billion compared to $1.443 billion, while the operational
margin is down to 8.8% compared to 9.1% last year as printer sales are
dropping. The company continues its buyback operations in Q2 2022 when it spent
around $1 billion to purchase 27.4 million of its own stocks. These efforts cannot
last long considering rising stock prices and declining profits. Thus, HP
stocks are unlikely to beat peaks reached at the beginning of this year.
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