With shares of Hewlett-Packard (NYSE:HPQ) trading around $22, 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 MovementHewlett-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.
Wells Fargo (NYSE:WFC) believes Hewlett-Packard's outlook is positive, noting that HP provided a full-year 2014 earnings per share guidance range with a higher-than-expected midpoint. Wells Fargo believes Hewlett-Packard's turnaround is progressing steadily, while its profits should grow following the 2014 fiscal year; the firm keeps an Outperform rating on the stock.
T = Technicals on the Stock Chart Are MixedHewlett-Packard stock performed well over the last several months. The stock has recently pulled-back from highs for the year and it may still need time to consolidate. 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 between its key averages, which signal neutral price action in the near-term.
(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 | 38.28% | 73% | 71% |
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 | |
| October Options | Steep | Average |
| November 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-QuarterRising 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 Q2 | 2013 Q1 | 2012 Q4 | 2012 Q3 | |
| Earnings Growth (Y-O-Y) | -14.00% | -31.25% | -13.70% | -3060.00% |
| Revenue Growth (Y-O-Y) | -8.23% | -10.14% | -5.58% | -6.73% |
| Earnings Reaction | -12.45% | 17.09% | 12.28% | -11.95% |
Hewlett-Packard has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Hewlett-Packard’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and SectorHow has Hewlett-Packard stock done relative to its peers, Dell (NASDAQ:DELL), IBM (NYSE:IBM), Apple (NASDAQ:AAPL), and sector?
| Hewlett-Packard | Dell | IBM | Apple | Sector | |
| Year-to-Date Return | 55.37% | 36.44% | -4.30% | -7.90% | 19.90% |
Hewlett-Packard has been a relative performance leader, year-to-date.
ConclusionHewlett-Packard is a software an technology bellwether that provides essential products and services to consumers and companies worldwide. Recent positive news from Wells Fargo in regards to Hewlett-Packard has investors upbeat about the company. The stock has been moving higher in recent months but is now consolidating after a pullback. Over the last four quarters, earnings and revenues have been declining, which has produced mixed feelings among investors. Relative to its peers and sector, Hewlett-Packard has been a year-to-date performance leader. Look for Hewlett-Packard to OUTPERFORM.
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