With a daily loss of -3.14% and a 3-month gain of 13.63%, Hewlett Packard Enterprise Co (HPE, Financial) presents a complex picture for investors. The company's Earnings Per Share (EPS) stands at $1.45, but the question remains: is the stock modestly overvalued? This article delves into the valuation analysis of HPE, guiding readers through the intricacies of its market position and potential investment value.
Company Introduction
Hewlett Packard Enterprise Co is a formidable player in the information technology sector, offering a comprehensive range of hardware and software solutions to enterprises. Renowned for its compute servers, storage arrays, networking equipment, and high-performance computing business, HPE aims to bridge the gap between edge-to-cloud solutions. With a primarily outsourced manufacturing model, it sustains a global workforce of 60,000 employees. The current stock price of $18.18 contrasts with the GF Value of $16.07, suggesting a potential overvaluation. This introductory snapshot sets the stage for an in-depth valuation analysis, juxtaposing the stock's market price against its estimated fair value.
Summarize GF Value
The GF Value is a proprietary metric that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. This value serves as a benchmark for what the stock should ideally trade at. When a stock's price considerably exceeds the GF Value Line, it may be overvalued, which could lead to disappointing future returns. Conversely, a price well below the line could indicate undervaluation and potentially higher future returns. With a market cap of $23.60 billion, Hewlett Packard Enterprise Co appears to be modestly overvalued at its current share price.
Given this modest overvaluation, it is likely that the long-term return on HPE's stock may not align with the company's business growth. Investors should consider this when evaluating the stock's potential for their portfolios.
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Financial Strength
The financial strength of a company is critical in mitigating the risk of permanent capital loss. Investors must scrutinize a company's financial ratios, such as the cash-to-debt ratio and interest coverage, to gauge its financial robustness. Hewlett Packard Enterprise Co's cash-to-debt ratio of 0.29 places it lower than 83.16% of its peers in the Hardware industry. Its overall financial strength score is 6 out of 10, denoting a fair financial condition.
Profitability and Growth
Investing in profitable companies, especially those with a track record of consistent profitability, is generally less risky. Hewlett Packard Enterprise Co has maintained profitability for 9 out of the past 10 years, boasting a solid operating margin of 8.46%, which surpasses 71.29% of competitors in the Hardware industry. With a profitability rank of 7 out of 10, HPE's financial performance is commendable.
The growth prospects of a company are paramount to its valuation. Hewlett Packard Enterprise Co's 3-year average annual revenue growth rate stands at 2%, while its EBITDA growth rate of 27.1% outperforms 74.69% of the companies in its industry, signaling a strong growth trajectory.
ROIC vs WACC
A company's profitability can also be assessed by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). An ROIC that exceeds the WACC indicates that the company is effectively generating cash flow relative to its invested capital. However, over the past year, Hewlett Packard Enterprise Co's ROIC of 4.51 has fallen short of its WACC of 7.56, suggesting that the company may not be creating optimal value for its shareholders.
Conclusion
In summary, Hewlett Packard Enterprise Co (HPE, Financial) appears to be modestly overvalued. While its financial health is stable and profitability is fair, the company's growth outshines a majority of its industry counterparts. For a more detailed financial overview, investors can explore HPE's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
