Will HP Continue This Explosive Run?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $27, is Hewlett-Packard 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 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, 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

Hewlett-Packard stock has seen an explosive surge higher in recent months. The stock is trading at highs for the year and at prices not seen for a couple of years. 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 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 Hewlett-Packard options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

HP Options

56.31%

86%

83%

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

September Options

Flat

Average

October 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 significant 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 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?

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%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Hewlett-Packard 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

92.07%

35.35%

-1.74%

-11.20%

23.30%

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

Conclusion

Hewlett-Packard is a software an technology giant that provides essential products and services to consumers and companies worldwide. The stock has been on a monster run in recent months and is now trading near highs for the year. Over the last four quarters, earnings and revenue figures have been decreasing, however, investors have been pleased with recent earnings announcements. Relative to its peers and sector, Hewlett-Packard has been a year-to-date performance leader. Look for Hewlett-Packard to continue to OUTPERFORM.

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