Hpq - Did you know?

Think about the alternative uses for $236 million other than compensating all of the people who are deemed unworthy to continue to move HP forward. For instance, you could give 10 small, growth technology companies $23.6 million a piece for development and growth initiatives. Heck, structure it as equity and you’d like get over a 50% stake in each one. Think about it, HPQ could have bought vast majority stakes in 10 companies that have technology that is currently viable but just needs growth capital. One could go even further and say that HPQ could seed fund 100 companies with $2.36 million a piece. HPQ could’ve created a portfolio of 100 small start-ups that could be creating the next big thing 10 years from now. 1

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for HPQ of 0.97x is slightly under its historical average. Such a drop would increase the attractiveness of the stock but, as always, would need to be considered in the context of all other valuation factors. 2

Hewlett-Packard has been on a nice uptrend since last July but the the technicals for the stock have been deteriorating lately. HPQ has a cautious S&P 3 STAR (out of 5) hold rating with a 12-month price target of $45. Out of the 19 other analysts who cover the stock, nine give it a strong buy, three a moderate buy, six a hold, and one gives it a moderate sell gives it a hold. Overall analysts seem positive on the stock. 4

Hewlett-Packard ’s stock went on a steady rise from a low of $29.00 on June 8, 2006 up 50.8% to a high of $43.72 on January 12, 2007. The stock is now about 3.4% below its 52-week high. Not bad in this unsure market. 5

Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company’s value, and currently HPQ is significantly below its historical average multiple of Cash Earnings. For example, HPQ’s Cash Earnings ratio per share has fluctuated between 10.53 and 18.40 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where HPQ is with respect to prior business periods. 3