HP (HPQ)

Personal computing and printing company HP (NYSE:HPQ) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 4.2% year on year to $14.64 billion. Its non-GAAP profit of $0.93 per share was in line with analysts’ consensus estimates.

Company Overview

Born from the legendary Silicon Valley garage startup founded by Bill Hewlett and Dave Packard in 1939, HP (NYSE:HPQ) designs and sells personal computers, printers, and related technology products and services to consumers, businesses, and enterprises worldwide.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

HP's main competitors in personal computing include Dell Technologies (NYSE:DELL), Lenovo Group (OTC:LNVGY), Apple (NASDAQ:AAPL), and Acer. In the printing business, HP competes with Canon (NYSE:CAJ), Xerox (NASDAQ:XRX), Brother Industries (OTC:BRTHY), and Epson (OTC:SEKEY).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $55.3 billion in revenue over the past 12 months, HP is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. For HP to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, HP struggled to increase demand as its $55.3 billion of sales for the trailing 12 months was close to its revenue five years ago. This shows demand was soft, a poor baseline for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. HP’s annualized revenue growth of 1.5% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Commercial Personal Systems and Commercial Printing, which are 47.6% and 29.1% of revenue. Over the last two years, HP’s Commercial Personal Systems revenue (desktops, laptops, etc.) averaged 5.5% year-on-year growth. On the other hand, its Commercial Printing revenue (commercial or industrial printers) averaged 3.7% declines.

This quarter, HP reported modest year-on-year revenue growth of 4.2% but beat Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not catalyze better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

HP was profitable over the last five years but held back by its large cost base. Its average operating margin of 7% was weak for a business services business.

Analyzing the trend in its profitability, HP’s operating margin decreased by 2.6 percentage points over the last five years. HP’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, HP generated an operating margin profit margin of 6.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

HP’s EPS grew at an unimpressive 6.6% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into HP’s earnings to better understand the drivers of its performance. A five-year view shows that HP has repurchased its stock, shrinking its share count by 30.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For HP, its two-year annual EPS declines of 2.8% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, HP reported adjusted EPS of $0.93, in line with the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects HP’s full-year EPS of $3.13 to grow 5.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

HP has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that HP’s margin dropped by 4.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

HP’s free cash flow clocked in at $1.43 billion in Q3, equivalent to a 9.7% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although HP hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 53.6%, splendid for a business services business.

HP reported $3.71 billion of cash and $9.67 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.62 billion of EBITDA over the last 12 months, we view HP’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $454 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see HP narrowly top analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance missed and its EPS guidance for next quarter fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5.8% to $22.92 immediately following the results.

Updated: December 3, 2025 at 11:11 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own HP, you should also grasp the company’s longer-term business quality and valuation.

HP falls short of our quality standards. To begin with, its revenue growth was weak over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its projected EPS for the next year is lacking. On top of that, its cash profitability fell over the last five years.

HP’s P/E ratio based on the next 12 months is 8.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $25.88 on the company (compared to the current share price of $25.14).