When HP (NYSE:HPQ) split with Hewlett-Packard Enterprise (NYSE:HPE) two years ago, many analysts believed that HP, which retained the PC and printer businesses, would be a weaker play than HPE, which kept the enterprise hardware and software businesses.

Yet HP rallied about 45% over the past year, while HPE rose just 6%. I believe that HP's rally isn't over yet, so I recently started a position in the stock for seven simple reasons.

HP's 2-in-1 Spectre x2.

Image source: HP.

1. Accelerating revenue growth

HP is generally considered a slow-growth "mature" tech stock. Yet the company posted four straight quarters of accelerating revenue growth, fueled by rebounding sales of its PCs and printers.


Q4 2016

Q1 2017

Q2 2017

Q3 2017


$12.5 billion

$12.7 billion

$12.4 billion

$13.1 billion

YOY growth





Source: HP quarterly reports.

Looking ahead, analysts expect HP's revenue to rise 6%% annually during the fourth quarter and 7% for the full year, compared to a 6% decline in fiscal 2016.

2. Robust overseas growth

HP is generating robust growth in overseas markets. Last quarter, its revenue from the EMEA (Europe, Middle East, and Africa) and Asia-Pacific regions -- which together account for 52% of its revenues -- respectively rose 10% and 15% annually. Its North American revenues, which accounted for the remaining 48%, rose 8%.

3. A "best in breed" PC business

Prior to splitting with HPE, HP's PC business was overtaken by Lenovo (OTC:LNVGY) to become the largest PC vendor in the world. But HP reclaimed that title earlier this year by posting multiple quarters of year-over-year shipments growth amid an ongoing slowdown in worldwide PC sales.

HP's Envy all-in-one PC.

Image source: HP.

Research firm Gartner recently reported that HP's PC shipments rose 4.4% annually during the third quarter, marking its fifth straight quarter of growth and making it the only leading PC vendor to post positive growth.

HP attributes that recovery to more appealing laptop designs, rosy demand for higher-end devices, and new security features for enterprise users. That's why its Personal Systems (PCs) revenue rose 12% annually last quarter. By comparison, Lenovo's PCSD (PC and Smart Devices) unit posted flat year-over-year sales growth last quarter as it tried to offset sluggish shipment volumes with price hikes.

4. An evolving printing business

HP's printing revenues also rose 6% annually last quarter as higher sales of consumer units and supplies offset flat growth in the commercial segment. HP is diversifying this business away from the commoditized inkjet and laser printer markets toward higher-growth markets -- which include mobile printers, multi-function printers (which can replace copiers, fax machines, and scanners), industrial 3D printers, and even next-gen metal 3D printers.

HP's Sprocket mobile printer.

Image source: HP.

HP also agreed to buy Samsung's (NASDAQOTH: SSNLF) printing unit, which will scale up its manufacturing operations and give it a larger share of the multi-function printer market.

5. Steady margins and rebounding earnings growth

For a company that operates in two commoditized markets, HP's non-GAAP operating margin held steady, dipping just one percentage point annually to 8% last quarter.

HP's non-GAAP earnings fell 10% annually last quarter, primarily due to higher component costs (especially memory chips), and are expected to rise just 3% this year. However, component costs are expected to gradually decline in 2018, enabling HP to post 8% earnings growth next year.

Meanwhile, HP's cash and equivalents rose 11% annually to nearly $7 billion. This gives it plenty of room to expand into adjacent markets with new investments or acquisitions.

6. It's a shareholder friendly company

In the first three quarters of 2017, HP returned $524 million, or 56% of its FCF, to its shareholders. The company previously stated that it would return "50% to 75%" of its free cash flow (FCF) to shareholders via buybacks and dividends.

During last quarter's conference call, CFO Cathie Lesjak stated that HP still planned "to deliver returns toward the higher end of the range" -- which means that investors could see accelerated buybacks and a big dividend hike by the end of the year.

7. Its dividend and valuation limit its downside potential

HP currently pays a forward dividend yield of 2.5%, which beats the S&P 500's average yield of 1.9% and HPE's forward yield of 1.8%. HP also trades at just 12 times next year's earnings, which is surprisingly cheap after its year-long rally. Therefore, that decent yield and low valuation should protect the stock during major market downturns.

The bottom line

Back in March, I declared that the "best was yet to come" for HP. But I didn't take my own advice at the time, and missed out on a 24% gain. I don't plan on missing the next leg up, so I'm buying some shares here as this mature tech stock warms up again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.