Why HP stock popped 19% today
Warren Buffet’s Berkshire Hathaway revealed a major stake in the tech company. Should investors follow his lead?
Shares of PC and printer maker HP Inc (HPQ) jumped as much as 16% Thursday after Warren Buffett’s Berkshire Hathaway revealed a major investment in the company. Shares of HP began to climb in premarket trading Thursday on the news and continued the rally through Thursday’s trading session, gaining as much as 19% in the morning hours. The stock closed up 15% for the day.
What happened?
Securities filings released Wednesday showed the “Oracle of Omaha” owns nearly 121 million shares of HP, a stake worth roughly $4.2 billion based on Wednesday’s closing price of $34.91. It’s a stake of about 11.5%, making Buffett the largest shareholder in the old tech company.
Berkshire bought some of the stock earlier in the week in multiple transactions , according to regulatory filings late Wednesday. It’s his second biggest tech holding by value next to Apple (AAPL). “Berkshire Hathaway is one of the world’s most respected investors and we welcome them as an investor in HP Inc,” HP said in a statement.
Thinking of buying HP stock?
HP has benefited from the pandemic-led demand for PCs and home office equipment, with the company seeing an uptick in sales of its PCs and printers over the past couple years.
But the company has already seen a drop off in its consumer revenue as people return to work. For the three months ended January 31, 2022, HP reported a 1% year-over-year decline in consumer sales. For the same quarter last year, HP saw consumer revenue climb 55% year over year. That said, commercial revenue is up. For the three months ended January 31, 2022, HP saw commercial sales grow 26% year over year. For the same quarter last year, commercial sales were down 11%. For the quarter, HP reported a 15% increase in computer revenue compared to the same period last year. Investors need to think about whether consumer sales will continue to fall and if HP can continue to grow its commercial revenue.
For the second quarter of 2022, HP sees EPS in the range of $1.02 to $1.08, in line with analyst estimates. Its full year EPS outlook is $4.18 to $4.38 a share. Wall Street was modeling for $4.15 to $4.43 a share.
HP’s stock is trading at all-time highs
Separately, HP’s stock has been performing well, despite the broader market selloff since November. Shares of HP are trading at their highest levels, and have been, even before Buffett revealed his large stake in the company. For more information and a 5-year view of the stock’s performance, check out our guide to buying HP stock.
Moreover, HP shares only trade on a forward price-to-earnings multiple of 8.35 times, according to Yahoo Finance data. That’s below the forward PE multiple on the S&P 500 of 20.11 times. It’s also well below the 29.15 times Microsoft (MSFT) shares fetch and Apple’s forward PE multiple of 29.67 times. In simple terms, that means the stock is comparatively cheap.
And if nothing else, Buffett’s move shows investors that when times are tough, the smart money is buying.
At the time of publication, Matt Miczulski owned shares of AAPL.
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