Has Hewlett-Packard Caught A Bid?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $21.27, is HPQ an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Hewlett-Packard is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the Government, health and education sectors. Its operations are organized into seven segments: the Personal Systems Group, Services, the Imaging and Printing Group, Enterprise Servers, Storage and Networking, HP Software, HP Financial Services and Corporate Investments. Hewlett-Packard’s offerings include personal computing and other access devices; multi-vendor customer services, including infrastructure technology and business process outsourcing, application development and support services, and imaging and printing-related products and services. As a leading provider of diverse software and technologies, Hewlett-Packard will see rising profits from growing companies and economies worldwide. Technology advances at explosive rates and Hewlett-Packard stands ready to provide the products and services many consumers and companies around the world require to fuel expansion.

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T = Technicals on the Stock Chart are Mixed

Hewlett-Packard stock is now attempting to recover from increased selling pressure over the last several years. The stock has put together a reasonable bounce but may need a catalyst to propel the stock higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hewlett-Packard is trading around its key averages which signal neutral to bullish price action in the near-term.

HPQ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Hewlett-Packard options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Hewlett-Packard Options

45.17%

90%

89%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Hewlett-Packard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hewlett-Packard look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-13.70%

-3060%

-582%

-23.81%

Revenue Growth (Y-O-Y)

-5.59%

-6.72%

-4.87%

-2.97%

Earnings Reaction

12.28%

-11.95%

-8.12%

3.27%

Hewlett-Packard has seen decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have been a bit confused about Hewlett-Packard’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Hewlett-Packard stock done relative to its peers, Dell (NASDAQ:DELL), International Business Machines (NYSE:IBM), Accenture (NYSE:ACN), and sector?

Hewlett-Packard

Dell

IBM

Accenture

Sector

Year-to-Date Return

49.51%

32.40%

7.60%

22.08%

19.56%

Hewlett-Packard has been a relative performance leader, year-to-date.

Conclusion

Hewlett-Packard provides essential technology products and services to growing consumer populations, companies, and countries across the globe. The is seeing a modest bounce after witnessing a few years of increased selling. Earnings and revenue have been decreasing, over the last four quarters, which has produced mixed feelings among investors. However, relative to its peers and sector, Hewlett-Packard has led in year-to-date performance. WAIT AND SEE what Hewlett-Packard does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.