HP share price in the doldrums

April 17, 2020

At $16 (€14.75) a share, the HP share value is down 20% since the start of the year and some analysts think it could hit $10 (€9.22) a share before long.

So why is the share price dropping? HP has grown its revenues by 13%, and net income is up 25%. The share buyback has led to a jump in earnings per share of around 40%.

Today’s share price gives an enterprise value of around $21.35 billion (€19.68 billion), well below the $30 billion (€27.66 billion) that Xerox was willing to pay a month or so ago.

During the Xerox and HP takeover talks, HP CEO Enrique Lores commented more than once that the Xerox $30 billion (€27.66 billion) offer still undervalue HP’s assets. The Lores challenge has to be to realise the value sooner, rather than later.

With PC’s, laptops and printers flying off store shelves to facilitate the work-from-home coronavirus safe distancing strategy it should boost sales. But the boost now may well be at the expense of future sales.

As yet there is no feedback on how the coronavirus has impacted on HP’s printer revenues where managed print services are a significant revenue source. Will the online sharing of documents and small ticket price printer sales for work-from-home employees, displace the more lucrative cost per copy revenues?

Post coronavirus companies and individuals are likely to postpone big-ticket spending on IT and focus on repairing their finances. These same pressures could also see delays or cancellations in MPS renewals, and printer cartridge sales as price, rather than brand may well drive consumable spend.

The more medium term the work-from-home learning experience using online document sharing may well be seen as a better option.

HP’s Q1 results are due in May, and we will see how well they fared. A hit on Q1 revenues and lower Q2 and 2020 guidance could, according to a Trefis article posted on Forbes, see “a reduction in revenues and margins could result in the stock price shrinking to as low as $10 (€9.22).”

While that is one opinion, the coronavirus is shaking confidence in the maturing printer technology sector. The Xerox share price has dropped from $36.18 (€33.36) on 1 January to $17.03 (€15.70) today.

And in the time it took to research and write this article, the HP share price dropped from $16 (€14.75) to $14.82 (€13.67).