Will Hewlett-Packard Seek Higher Prices?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $23, 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:

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T = Trends for a Stock’s Movement

Hewlett-Packard provides products, technologies, software, solutions, and services to individual consumers, small and medium businesses, and large enterprises worldwide. The company offers commercial notebooks and desktops, consumer notebooks, desktops, and software and services for the commercial and consumer markets. The services segment provides consulting, outsourcing, and technology services to infrastructure, applications, and business process domains. The diverse technological products and services offered by Hewlett-Packard make it a leading provider that sees increased demand through global expansion.

Head on over to the next page to explore the technical landscape of Hewlett-Packard’s stock…

T = Technicals on the Stock Chart are Strong

Hewlett-Packard stock has been caught in a wide range for the last decade. Currently, the stock is seeing a significant bounce from the bottom end of the range. Should this bounce continue much like before, the stock has potential to see amazing gains. 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 above its untangling moving averages which support an uptrend 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

32.78%

30%

23%

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

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Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

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

-13.7%

-2129.41%

-582.8%

-23.81%

Revenue Growth (Y-O-Y)

-5.59%

-6.72%

-4.87%

-2.97%

Earnings Reaction

12.3%

-11.92%

-8.08%

3.26%

Hewlett-Packard has seen decreasing earnings and revenue growth over the last four quarters. From these figures, the markets have been very emotional about Hewlett-Packard’s last four earnings announcements. However, the latest report has really excited the markets.

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), Apple (NASDAQ:AAPL), and sector?

Hewlett-Packard

Dell

IBM

Apple

Sector

Year-to-Date Return

58.72%

34.24%

8.63%

-19.37%

4.7%

Hewlett-Packard has outperformed its peers and sector by a wide margin.

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Conclusion

Hewlett-Packard is an established company that is providing the products and services consumers and businesses require in order to grow. Earnings and revenue figures have been declining over the last four quarters but the markets were impressed by Hewlett-Packard’s latest earnings report. The stock has led its peers and sector by a significant margin. Look for Hewlett-Packard stock to continue to OUTPERFORM.

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