HP Stock Up 13% Today – Time to Buy HPQ Stock?

The price of HP stock is soaring over 13% in pre-market stock trading action this morning after billionaire investor Warren Buffett’s conglomerate – Berkshire Hathaway – disclosed a sizable stake in the company.

According to a filing with the US Securities and Exchange Commission (SEC) published this morning, Berkshire has amassed an 11% stake in the tech company, currently owning over 120.95 million shares. Based on HPQ yesterday’s closing price, that stake is worth around $4.22 billion.

According to data from Whale Wisdom, HP is currently the 11^th largest holding in Berkshire’s stock portfolio and its second largest investment in the tech sector after Apple Inc. (AAPL).

Once a printing giant, HP continues to struggle with a move toward digital paperwork and eco-friendly office practices. However, the company’s Personal Systems segment performed positively during the pandemic as businesses and individuals relied on its notebooks, desktops, peripherals, and other products to perform their duties while confined within their homes.

The reasoning behind Buffett’s decision to buy such a massive stake at HP has not yet been disclosed and investors may have to wait for the Oracle of Omaha’s next public appearance to learn more about the operation.

Berkshire Hathaway and Buffet himself have also been working for years in a succession plan that involves the progressive transitioning of the stock-picking side of the business to key individuals within the organization such as Todd Combs, Greg Abel, and Ajit Jain.

Any of these characters may have been responsible for the HP transaction. However, given the size of the operation, it is possible that everyone within the company, including Buffett, were well informed about the rationale behind the purchase.

What could be expected from this tech stock following Berkshire’s investment in the company? In this article, I’ll be assessing the price action and fundamentals of HPQ stock to outline plausible scenarios for the future.

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HPQ Stock – Technical Analysis

The price of HP stock has declined more than 7% so far this year as the market remains undecided about what the future may hold for the company now that the pandemic tailwind is progressively fading.

Based on yesterday’s closing price, HP is trading 13.5% below its 52-week high of $40.37 but still 6.7% above its 200-day simple moving average.

As highlighted in the chart above, HPQ stock remains in consolidation mode as the price has struggled to climb above the $40 level while finding temporary support at around $33 per share.

These two levels are the most relevant to watch in the near future as a break above or below these markers could provide more evidence about what’s coming for HPQ.

Momentum indicators are standing in negative territory ahead of today’s session with the Relative Strength Index (RSI) standing at 42 while the MACD has moved below the signal line at the same time it is drifting to negative territory.

Buffett’s pad on the back to HPQ stock could lead to a short-term rally but it is still unclear if the market will see what he sees in the company.

HPQ Stock – Fundamental Analysis

The positive performance of the business during the health crisis and the management’s upbeat guidance for 2022 have been responsible for lifting the stock price lately. In its latest quarterly report, the management raised its non-GAAP EPS forecast for the entire year to a range between $4.18 and $4.38. They also anticipate that the firm will generate around $4.5 billion in free cash flows.

Meanwhile, HP is conservatively financed as its long-term debt stands at $6.4 billion while total assets ended the last quarter at $38.9 billion including $3.4 billion in cash and equivalents.

HP is also offering a 2.9% dividend yield at the moment while the firm has been purchasing around $1.5 billion in stock every quarter.

At its current market capitalization of $36.8 billion, the firm is trading at around 8.2 times its forecasted free cash flows for 2022. This is a textbook deal for Buffett considering that HP has a strong moat in the tech hardware market due to its well-known brand and extensive product line.

In an increasingly digital world, Buffett might be seeing a change in the tide for HP and a potential improvement in the firm’s fundamentals down the road. Moreover, the business’s cash flow generation capacity is quite strong and this positions HP positively to make the required investments to become a leading player in some of today’s up-and-coming segments in the tech industry.

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