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Here’s 1 Hewlett-Packard Catalyst You May Have Forgotten

Investors are buying shares of Hewlett-Packard  (NYSE: HPQ  ) following bullish PC guidance from Intel  (NASDAQ: INTC  ) , and rightfully so. Yet, while investors ponder the implications of this news for Hewlett-Packard, 3-D printing is a forgotten, and possibly even bigger, catalyst for HP, which could take shares higher and put more pressure on 3D Systems  (NYSE: DDD  ) .

There's more to HP than PCs
On Friday, HP shares soared over 5% and Intel's increased nearly 7%, after the latter boosted second-quarter revenue guidance by $700 million to $13.7 billion on higher PC demand. This is clearly a good sign for HP, which generates nearly 30% of its business from PCs.

The fact that HP and Intel trade at nine and 14 times forward earnings, respectively, means they're relatively cheap, which serves as a key reason that both shares have soared higher. Moreover, with more than half of Intel's revenue created from PC-related chips, this new-found demand could be a good long-term sign. But, HP investors have seemingly forgotten the company's other segments, specifically printing, which could push shares to a much higher level.

Why is printing so important?
In HP's last quarter, printing revenue declined 4% year over year and accounted for 21% of its $27.3 billion in total revenue. Therefore, it's about equal in size to HP's hardware and services segments, but noticeably smaller than PCs. Yet, perhaps the most telling metric is 42%, which according to the company, is the percentage of operating profit that comes from HP's printing segment.

Source: HP Q2 2014 Earnings Presentation

This means that printing is the company's most valuable asset, although it's losing business by the quarter, and HP is now seeking a method to recreate gains in this segment. According to CEO Meg Whitman, this growth and resurgence could come from 3-D printing. This is based on the announcement earlier this year that HP will enter the 3-D printing market for businesses. HP estimates that worldwide sales of 3-D printers and related software and services will grow from $2.2 billion in 2012 to $11 billion in 2021.

It's important to note that HP is not focusing on the consumer 3D-printing business, but rather the enterprise, which is conveniently driving sales of PCs higher. 3D Systems is perhaps the best illustration of what HP could capture in this market -- a strong presence with other businesses.

In the last 12 months, 3D Systems has generated revenue of $559 million and is expected to grow 39% this year. Its operating margin of 13% is much higher than HP's 7.7% margin, which, along with growth, serves as a key indication for why HP is interested in entering this space.

Moreover, 3-D printing companies like 3D Systems have had to compete with peers of similar size, but never a juggernaut like HP. Thus, HP's move into the space might move its stock in the right direction, but could cause significant headwinds for smaller 3-D printing names.

Albeit, Hewlett-Packard is prepared to enter the 3-D printing space with the largest market share in 2-D printing and a strong ecosystem of clients that use its PCs, hardware, and software. Hence, implementing 3-D printers shouldn't be a difficult task for the company, and with $15 billion in cash on its balance sheet, it's not a risky venture, either.

Foolish thoughts
Due to the margins and growth associated with 3-D printing, it is an arena that could drive HP's stock significantly higher by noticeably increasing the company's bottom line. Despite Hewlett-Packard's 157% stock gains since 2013, shares still trade at just 12 times trailing 12-month earnings, versus a 19 times earnings ratio for the S&P 500.

Hewlett-Packard is priced for long-term gains, and while the return of PC growth is a massive move in the right direction, 3-D printing might be the biggest stock-moving catalyst of the next several years.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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