| | | Re: HP Inc (HPQ) vs Dell Technologies Inc (DELL)
Given that Buffet is/was a holder/buyer in HPQ, wonder if Buffett would find similar value in DELL?
recent transaction by Buffet from DATAROMA
Buffett still holds 0.84 % in HPQ
AI BARD's value arguments for HPQ:
Here's an analysis of HPQ using Graham and Buffett's value investing metrics, as of January 7, 2024:
Key Metrics:
Graham's Numbers:
P/E Ratio: 9.5 (Graham preferred under 15)
P/B Ratio: 1.2 (Graham preferred under 1.5)
Current Ratio: 1.4 (Graham preferred over 2)
Debt-to-Equity Ratio: 0.4 (Graham preferred under 0.5)
Buffett's Metrics:
Earnings Per Share (EPS): $4.20
Return on Equity (ROE): 15% (Buffett prefers over 10%)
Free Cash Flow (FCF): $3.5 billion
Qualitative Factors:
Strong Brand: HP is a well-recognized brand with a loyal customer base.
Recurring Revenue: HP's printer business generates recurring revenue from ink and toner sales.
Shareholder Returns: HP has a history of returning cash to shareholders through dividends and buybacks.
Value Argument:
Undervaluation:
HPQ's P/E and P/B ratios are below Graham's recommended thresholds, suggesting potential undervaluation.
The current ratio is slightly below Graham's ideal, but the debt-to-equity ratio is favorable.
Profitability and Cash Flow:
HPQ has a respectable ROE and generates significant free cash flow, aligning with Buffett's preference for profitable and cash-generative businesses.
Shareholder-Friendly:
HPQ's history of returning cash to shareholders aligns with Buffett's value investing philosophy.
However, it's crucial to note:
Recent Performance: HPQ lowered its earnings expectations in August 2023, raising concerns about future growth.
Competitive Landscape: The PC and printer markets are highly competitive, posing challenges to HPQ's market share and profitability.
Valuation: While HPQ's valuation metrics suggest potential undervaluation, it's essential to consider the company's current challenges and future prospects.
Conclusion:
Based on Graham and Buffett's metrics, HPQ could be considered undervalued. However, it's essential to weigh these factors against the company's recent performance and the competitive landscape before making an investment decision.
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HPQ vs. DELL Value Analysis:
Here's a comparison of HPQ and DELL using the same value metrics from Graham and Buffett, as of January 7, 2024:
Metric HPQ DELL
Graham:
P/E Ratio | 9.5 | 13.1 (as of Jan 7, 2024)
P/B Ratio | 1.2 | 2.4
Current Ratio | 1.4 | 0.76 (as of Oct 27, 2023)
Debt-to-Equity Ratio | 0.4 | 1.2 Buffett: | | |
EPS | $4.20 | $5.74
ROE | 15% | 18%
Free Cash Flow | $3.5 billion | $5.63 billion (trailing twelve months as of Oct 27, 2023)
Qualitative Factors:
Brand: Both HP and DELL are strong brands with loyal customer bases.
Recurring Revenue: Both companies generate recurring revenue from services and consumables.
Shareholder Returns: Both have a history of returning cash to shareholders through dividends and buybacks.
Value Argument:
Based on these metrics:
Undervaluation: DELL appears more undervalued based on its lower P/E ratio and higher ROE. Both have decent P/B ratios, but HPQ has a better debt-to-equity ratio.
Profitability and Cash Flow: DELL has higher EPS and free cash flow, suggesting greater profitability and cash generation.
Shareholder-Friendly: Both companies share a history of returning cash to shareholders.
However, consider these additional factors:
Recent Performance: HPQ lowered its earnings expectations in August 2023, while DELL has maintained its guidance.
Competitive Landscape: Both face competition in the PC and server markets, with DELL having a broader enterprise focus.
Conclusion:
DELL appears more undervalued, particularly based on its P/E ratio and stronger profitability metrics.
HPQ might offer a value play with its lower debt and favorable P/B ratio, but its recent performance warrants caution.
Ultimately, the choice depends on your investment goals and risk tolerance. DELL offers potentially higher returns, but HPQ may be less volatile and have a slightly higher margin of safety.
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Morningstar shows a comparison of some of the metric for DELL vs HPQ
In many ways DELL has better value metrics than HPQ. Note BV may be negative for DELL because of Goodwill & intangible assets. Looks like AI Bard took out these intangible assets when calculating BV.
Other metric appear correct when you check on the Morningstar link above. Yahoo Finance link for DELL |
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