Can HP Continue This Bullish Run?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $26, 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

HP 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.

T = Technicals on the Stock Chart are Strong

HP stock has witnessed a powerful move higher this year. The stock is not showing any significant signs of slowing just yet. 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, HP is trading above its rising 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 HP options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

HP Options

31.75%

6%

4%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish 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 HP’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for HP look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-31.25%

-13.70%

-3060.00%

-582.00%

Revenue Growth (Y-O-Y)

-10.14%

-5.58%

-6.73%

-4.87%

Earnings Reaction

17.09%

12.28%

-11.95%

-8.12%

HP has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with HP’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has HP stock done relative to its peers, Dell (NASDAQ:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), and sector?

HP

Dell

IBM

Apple

Sector

Year-to-Date Return

83.93%

26.13%

1.39%

-19.15%

22.45%

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

Conclusion

HP is a software an technology bellwether that provides key products and services to consumers and companies worldwide. The stock has been on a powerful surge higher and does not show any significant signs of slowing. Over the last four quarters, earnings and revenue figures have been decreasing, however, investors in the company have been optimistic about recent earnings reports. Relative to its peers and sector, HP has been a year-to-date performance leader. Look for HP to continue to OUTPERFORM.

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