Hewlett-Packard; (NYSE:HPQ) the name is synonymous with Silicon Valley. Bill & Dave, The Garage, the storied history of the company - it's a high tech legend along with Apple, (NASDAQ:AAPL) Intel, (NASDAQ:INTC) and the other technology giants of Silicon Valley.
In case you're not familiar with this high tech giant, Hewlett-Packard is a multi national high tech company that did $127.2 billion in sales in 2011. Hewlett-Packard is the world's largest provider of information technology products and software services and solutions to individuals and organizations across the globe. The company and its subsidiaries provide everything from personal computer products, networking and storage products, numerous types of printing solutions, IT management services, and consulting and outsourcing services.
Unfortunately, these are tough days for Hewlett-Packard and the prospects don't look to get much better any time soon. There is no compelling reason to go long Hewlett-Packard even with the stock trading at a multi year low. I certainly wouldn't recommend shorting the stock at this level - but I wouldn't buy it either. There are plenty more places to invest your capital that will perform better in the near term and quite possibly the long term.
Here are 6 reasons not to buy Hewlett-Packard:
- The company has a net long term debt of $25.8 billion dollars. That's by far the most long term debt in the history of the company. In comparison to some of its competitors such as Dell, (DELL) Hewlett Packard is in poor shape. They aren't in Xerox (NYSE:XRX) or Pitney Bowes (NYSE:PBI) territory but it's a negative and needs to be addressed.
- Growth concerns are an issue for Hewlett-Packard. Oh, not earnings growth mind you. The 30 analysts covering the stock have Hewlett-Packard earning $4.08 a share this year and $4.41 a share in 2013. The company will be cutting 27,000 jobs over the next couple of years and of course those savings drop right down to the bottom line - so earnings won't be an issue. The problem is revenue growth. The company grew revenue 1% in 2011 and the forecasted revenue growth for this year and 2013 is also a tad over 1% each year. They are facing formidable headwinds for revenue growth in all their business segments.
- Hewlett-Packard gets 35% of its revenues from sales in Europe. That's a problem for them that's going to be around for a while.
- The company has no mobile or tablet presence at all. They've really missed the boat in this growth area and are way behind the competition. Their HP Touchpad lasted a whopping 49 days before they killed it. Yes, they now have plans to introduce another tablet but can Hewlett-Packard recapture the innovation they once had?
- The company is way overweight in the personal computer business. When Carly Fiorina bought Compaq Computer and Hewlett-Packard doubled their pc business it was viewed by many as a strength. Now it's a liability and will become more so as time marches forward. The world's pc appetite is shrinking and will only continue to do so.
- Wall Street institutional investors have lost their infatuation with Hewlett-Packard stock and no longer find it an attractive investment like they once did. They used to stick by Hewlett-Packard through the minor hick ups, but all the miscues of the last 5 - 10 years has jaded them. That's a major reason why the stock is trading lower now than it's low in January 2009.
Conclusion: Hewlett-Packard currently has too many challenges facing it from both the poor global economy and stiff business competition. At this point it's a marginal investment at best. Will Meg Whitman be able to turn Hewlett-Packard around and get it back on a growth track? Will it become the innovative company it once was? Only time will tell but I have my doubts.
Additional disclosure: I have no plans to initiate a position in HPQ.