Hewlett-Packard (HPQ) stock has imploded today after reporting earnings, with HPQ stock dropping by double-digits intraday on news that it might not grow sales at all in 2014 and that management was being shaken up … again.
Some who invest in Hewlett-Packard stock might not be worried, since HPQ has been very kind to investors in 2013. Even after the sharp correction, shares of the PC-maker are up more than 50% year-to-date as of this writing.
But don’t expect those remaining gains to stick. Partially because of pressures in a post-PC age and partially thanks to poor management decisions, Hewlett-Packard stock is dead money for a while.
Here are the details worth noting from HP’s earnings report:
Terrible Turnaround: A tenuous five-year turnaround plan revealed in late 2012 has already hit a major stumbling block, with revenue forecast to be flat at best next year. It’s bad enough that Meg Whitman expected HPQ stock investors to be patient until 2017 … but now that glacial pace isn’t even enough to allow Hewlett-Packard stock to get on track.
Enterprise Pains: More on the revenue forecast … Despite plans to move beyond selling PCs and printers, Hewlett-Packard stock hasn’t been able to follow through on that promise. Soft margins and a meager 1% uptick in software sales mean serious headwinds to that part of the business. HP might blame this on weak business spending broadly, but that excuse won’t stick for long if the enterprise segment doesn’t find footing in a hurry.
Management Missteps: The Hewlett-Packard earnings call touted a focus on multi-OS, multiform operations to move beyond PCs. As a result, they were shuffling the deck for yet another painful reorg. Not only is HP painfully late to the game, this “new focus” is a hilarious about-about-face from the 2010 acquisition of Palm for $1.2 billion and then a 2011 decision to kill HP’s webOS operations. Meg Whitman seriously needs to get her company’s act together instead of giving “special assignments” like this.
Sure, Hewlett-Packard stock bulls will point to the fact that the company made $1.4 billion in profits, beating expectations handily despite an 8% decline in revenue year-over-year. But the top-line troubles this quarter — and the future outlook for sales being grim — is a much more important measure of where HPQ stock is headed.
Hewlett-Packard and Other PC Stocks Feel the Pain
Some of this big-picture trouble is, admittedly, not the fault of Hewlett-Packard. Many businesses that rely on laptop and desktop sales have been upended by the move to mobile, including Intel (INTC), Microsoft (MSFT) and Dell (DELL).
But HPQ stock investors who have been left holding the bag have nobody to blame but themselves. The same goes for those who got bullish on Microsoft … and then were punished as Surface sales disappointed and its PC-related businesses continued to drag.
There is assuredly room for other tech players at the table beyond Apple (AAPL) and Google (GOOG) with their mobile dominance. And I remain convinced that laptops and desktops remain valuable tools even in 2013, especially for those of us who work with words or numbers for a living.
But whether HP can remain dominant or whether it needs to “right-size” for the new world of electronics remains to be seen.
I have been a long-term bear on Hewlett-Packard for a long time. And while I wasn’t surprised to see the stock doubling from late 2012 through this summer on turnaround hopes, a 4%-plus dividend and a super-low valuation, I also wasn’t surprised by this recent flop.
It might be premature to call the turnaround plan of Meg Whitman & Co. a failure. But you can bet that investors are now going to entertain the possibility that Hewlett-Packard is going nowhere — and HPQ stock will go nowhere as a result, too.
Related Reading on Hewlett-Packard Stock
- HPQ stock and its earnings details. (Mercury News)
- Whitman shuffles executives around in the HP HQ. (CNBC)
- An oldie but a goodie — HP embodies what’s worst in corporate America. (InvestorPlace.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he was long P. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.