NEW YORK (TheStreet) – Value and growth are two determining factors when making investment decisions. Like beauty, they're in the eye of the beholder. To me, Hewlett-Packard (HPQ) was lacking in both.
Here's what I said back in May when HP shares had just reached a (then) 52-week high of $33.90:
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"At best, there shares have corrected from their two-year low. But there has been very little to support the close-to 200% gains, which can only be called an over-correction. Absent clear growth strategies to suggest that real value, HP is a decent short to the $25 level, or 23% lower."
I was wrong.
HP stock, now trading at around $35, is up 27% on the year to date, almost tripling the tech sector's 10% gain, according to Morningstar. Even more remarkable, since the stock bottomed at $11.71 in November 2012, HP has rewarded shareholders with gains of more than 200%. Investors want to know if it's time to cash in. The company reports earnings after the close Wednesday.
Despite the recent gains, these shares are still cheap, trading at just 12 times trailing earnings. Based on 2015 estimates of $3.91 per share, the P/E drops to 9, or 44 points below the industry average. HP should have no problems hitting $40 per share in the next six to 12 months.
To that end, it's important to consider the degree to which CEO Meg Whitman is executing on HP's strengths and whether she can extract more value from ongoing cost reductions.