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.