In this piece, I have evaluated two tech stocks, HP Inc. (HPQ) and GoPro, Inc. (GPRO), to determine which has a better return potential. Based on a fundamental comparison of the stocks, I find HPQ a better pick for the reasons explained throughout this article.
Technology stocks are always in high demand as they continue to make disruptive innovations. Disruptive innovations such as generative AI have been one of the primary reasons for the tech-heavy Nasdaq Composite’s 44.4% returns over the past year.
Gartner forecasts worldwide IT spending to rise 6.8% year-over-year to $5 trillion this year. The increasing complexity of software applications and the rise of data-intensive workloads arising out of big data analytics, virtual and augmented reality, the Internet of Things (IoT), artificial intelligence, machine learning, etc., are driving the demand for advanced hardware solutions.
Advanced hardware serves as essential physical infrastructure, enabling seamless software operation and relevance. The IT hardware market is predicted to reach $191.03 billion by 2029, growing at a 7.9% CAGR.
The Consumer Technology Association (CTA) forecasts a 2.8% growth in U.S. consumer technology industry retail revenues for 2024, reaching $512 billion, a $14 billion increase from 2023.
Additionally, the CTA anticipates a 2.3% growth in hardware revenue, overturning last year's 5.4% decline, with support from the emerging generative artificial intelligence software trend.
CTA’s Senior Director of Business Intelligence Richard Kowalski said, “Looking ahead to 2024, I expect developments in artificial intelligence will accelerate growth for consumer technology companies as they become more efficient and find more ways to meet consumer needs.”
HPQ expects its second-quarter non-GAAP net EPS to be between $0.76 and $0.86. Its fiscal 2024 non-GAAP net EPS is expected to be between $3.25 and $3.65. Also, for the full year 2024, HPQ expects to generate free cash flow between $3.10 and $3.60 billion.
On the other hand, GPRO expects its first-quarter revenue to decline 17% year-over-year to approximately $145 million. Its non-GAAP loss per share at the midpoint of its guidance is expected to come in at approximately $0.25 per share. In addition, GPRO expects unit sell-through to be flat to slightly down year-over-year to 550k +/- 50k units.
The company expects Steet ASP in the first quarter to be flat year-over-year but rise 10% sequentially to come in at approximately $375. Also, it expects its gross margin to be approximately 32.5% at the midpoint of its guidance, up from 30% in the prior year quarter.
In terms of price performance, HPQ is the clear winner. HPQ’s stock has gained 8.7% over the past month compared to GPRO’s 8.9% decline. Similarly, HPQ’s stock has risen 4.3% over the past three months, compared to GPRO’s 33.8% decline.
Here are the reasons HPQ could perform better in the near term.
Recent Financial Results
For the fiscal first quarter ended January 31, 2024, HPQ’s total net revenue came in at $13.19 billion. The company’s earnings from operations grew 25.8% year-over-year to $935 million. Its non-GAAP net earnings and non-GAAP net earnings per share rose 10.5% and 11% over the prior-year quarter to $808 million and $0.81, respectively.
GPRO’s revenue for the fourth quarter ended December 31, 2023, declined 8% year-over-year to $295.42 million. Its non-GAAP operating income fell 89.3% year-over-year to $2.03 million. Its non-GAAP net income and non-GAAP net income per share came in at $2.42 million and $0.02, representing a decrease of 88.5% and 83.3% from the year-ago value, respectively.
On the other hand, its net cash provided by operating activities rose 71.1% year-over-year to $43.73 million.
Expected Financial Performance
HPQ’s EPS for fiscal 2024 and 2025 is expected to increase 4.4% and 6.2% year-over-year to $3.42 and $3.64, respectively. Its revenue for fiscal 2024 is expected to decrease marginally year-over-year to $53.66 billion. However, its revenue for fiscal 2025 is expected to increase 3.6% year-over-year to $55.61 billion.
GPRO’s EPS is expected to remain negative for fiscal 2024. However, its EPS for fiscal 2025 is expected to increase 287.5% year-over-year to $0.15. Its revenue for fiscal 2024 is expected to increase marginally year-over-year to $1.01 billion. On the other hand, its revenue for fiscal 2025 is expected to decrease 1.2% year-over-year to $997.70 million.
Profitability
HPQ’s trailing-12-month revenue is 52.6 times what GPRO generates. HPQ is more profitable, with an EBIT margin and EBITDA margin of 8.20% and 9.79%, compared to GPRO’s negative 7.35% and 6.74%, respectively. Also, HPQ’s levered FCF margin of 5.74% compares to GPRO’s 0.19%.
Valuation
In terms of forward EV/Sales, GPRO’s 0.23x is 68.1% lower than HPQ’s 0.72x. Likewise, GRPO’s trailing-12-month Price/Sales ratio of 0.36x is 37.9% lower than HPQ’s 0.58x.
Thus, GPRO is relatively more affordable.
POWR Ratings
HPQ has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, GPRO has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. HPQ’s stock is trading above its 50-day and 200-day moving averages, consistent with its A grade for Momentum. On the other hand, GPRO’s stock is trading below its 50-day and 200-day moving averages, justifying its D grade for Momentum.
Both HPQ and GPRO have an A and a B grade for Value, respectively, which is in sync with their discounted valuation.
Of the 36 stocks in the A-rated Technology - Hardware industry, HPQ is ranked #13, while GPRO is ranked #26 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Stability, Sentiment, and Quality. Get all the ratings of HPQ here. Click here to view GPRO’s ratings.
The Winner
The demand for specialized hardware is increasing as organizations embrace emerging technologies such as AI, machine learning, IoT, AR, and VR to optimize operations. Moreover, a shift towards wireless operations in PCs and consoles is driving the growth of wireless peripherals, helping propel the tech industry forward.
Prominent tech giants HPQ and GPRO are positioned to benefit from the tech industry’s promising growth prospects. Despite facing headwinds in the end-user market, HPQ has delivered solid guidance for fiscal 2024.
HPQ’s strength can be gauged from its efficient financial management and strategic growth investments in critical areas, which helped it navigate a volatile operating environment in the first quarter.
The company remains on track to deliver its three-year gross annual run rate structural cost savings target of $1.6 billion by fiscal 2025. It will reinvest those savings into various growth areas. It expects the second half of fiscal 2024 to be stronger than the first half of the year.
Meanwhile, GPRO has plans to launch four new cameras and several other new products this year and is also expected to grow its retail footprint to 7,000 over the next two years. Its subscribers at the end of the year are expected to be between 2.5 million and 2.6 million.
However, GPRO believes that macroeconomic pressures will continue to impact consumer confidence and spending throughout this year. Additionally, it faces intense competition from other manufacturers of action cameras.
Considering HPQ's robust profitability, solid financials, discounted valuation, and strong momentum, it is a better investment choice than GPRO.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Hardware industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HPQ shares were trading at $30.54 per share on Monday morning, down $0.20 (-0.65%). Year-to-date, HPQ has gained 1.50%, versus a 7.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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