With a P/E ratio of 10.9, I agree that investors are giving HP short shrift, especially given the rational plan the company outlined at its investor day. HP is working to position itself "where the puck will be." Unfortunately, competitors are heading the same direction -- and some are in front of HP. Add in the uncertainty of a new CEO and a disappointing earnings outlook in February, and it's no wonder that HP is trading at a "show me" multiple.
That said, HP is so big that it doesn't have to get to the puck first. But while it's not in a winner-take-all situation, HP will still have to contend with IBM
In the technology industry, smaller, faster and more nimble players are often closest to the puck. HP plans to continue buying such companies; so do IBM and others. Fortunately, small high-tech companies often want to be bought by goliaths such as HP, IBM, Dell
But corporate acquisitions often fall short of projections, and I'm still not certain that HP can approach Cisco's or IBM's lofty success rates. The TouchPad tablet that sprang from HP's purchase of Palm last year is a compelling product, with potential to be a serious contender in the tablet wars. However, it's very late to the party, and HP lacks the marketing savvy of tablet leader Apple
HP is heading the right direction, and the stock currently trades at a low P/E ratio. But the company lags many of its rivals in their collective quest to snag that elusive puck. However promising its plan, HP may need several quarters of good news before its stock will begin to perform.