Even though Hewlett-Packard (HPQ) was adversely affected by the announcement PC shipments, long term the company will continue to fight its way into profitability. It continues to transition into cloud-based services instead of just manufacturing PCs and this is really good for the company. But if I would look at the company from a growth investor's perspective I believe I would have to advise an investor to look around before investing in HPQ. Let's take a look at its "CloudSystem" technology to see where it's going and combine that with what the markets are doing right now to see if we can observe where HPQ may be going in the short term.
As a quick reminder, IDC reported a large drop in shipments of PCs which was the largest decrease ever reported. Obviously this would have an adverse effect upon stocks that are in the PC market like Dell (DELL), Microsoft (MSFT) and Hewlett-Packard. Each of these companies took a hit after the news came out.
But Hewlett-Packard continues to evolve as a company focusing on other arenas besides the PC. It has been extending its commitment to the "OpenStack" community, providing new and enhanced cloud offerings that enable businesses to increase agility and innovation at better costs than they may have been doing in the past. While it has struggled the last few years it is also focused on contributing to the advancement of OpenStack infrastructure, software, developmental tools and operations.
For those of you who are unfamiliar with "OpenStack," it is an open and scalable operating system that can be used to build systems in the cloud, both public and privately. Instead of needing a "closed" cloud environment, this is an alternative platform for both small and large organizations to use. There are over 6,000 individuals in 190 companies in this community and HPQ is highly involved in helping other companies.
The "OpenStack" community is where HPQ is focusing for its future. Using OpenStack technology, HPQ's CloudSystem 7.2 release, features the latest private cloud integrated solutions. By leveraging "OpenStack" technology it enables support of "bursting" capabilities and KVM resource pools. And this creates the "pay-as-you-go" service through HP CloudSystem as companies move into HPQ's external sources. If you are unfamiliar with the concept of "bursting" it is a phrase better known as "cloud bursting" which is a simple application running in a private cloud or data center. If computing capacity demands it, the application will "burst" into the public cloud as needed. HPQ's Bursting Activation Services can easily and quickly be installed and configured allowing the CloudSystem software to burst from one HP cloud system to another.
So this is where Hewlett-Packard is journeying in the future and will be one of the cloud leaders. But the company also moves as the market moves. I would expect that it is at the tail end of its upward journey. As I observe the markets this also gives me signs that the company is going to level out soon. In fact, Stephen Rosenman of Seeking Alpha recently wrote an article about his observations on the market possibly reaching a top. This was his point of view:
"The average Dow Jones Industrial is only 3% below the target price. If you believe the analysts - who make their living following individual companies - the DJIA isn't cheap. It's hard to get excited about buying a stock with a potential two to three per cent gain. The stock market climb hasn't deterred most analysts. By and large, they have maintained their buy recommendations. Sometimes their bullish outlook seems incongruous to the price target. For instance, Pfizer has climbed above its price. Yet, the analysts still maintain a bullish 2.0 buy rating."
The company continues to face an uphill battle and has gone through a lot in the last couple years. But in the last four months the company has grown in value by 100% and I don't think it's going to keep this up. That doesn't mean the company cannot continue to grow but I am of the opinion that its continued rate of growth for this present trend is about at an end. With a combination of how much it has grown and observing other companies at or near their target prices, it seems the whole market is in a slowdown. For a value investor this means you have missed the boat. So if someone asked me whether they should invest in Hewlett-Packard right now and they are growth and value investors, I would tell them to explore other options in the market. Though I believe HPQ will continue the battle its way into profitability and I still believe it's a good company with all the challenges it has faced, it's time for this company's growth cycle to take a rest.