What happened
HP (HPQ 0.14%) stock is jumping this week following news that Berkshire Hathaway, which is led by CEO Warren Buffett, made a significant investment in the company. The PC and printer maker's share price was up roughly 13.7% from the previous week's market close as of 1:15 p.m. ET on Thursday, according to data from S&P Global Market Intelligence.
Securities filings made by Berkshire Hathaway revealed that it had purchased roughly 121 million shares of HP stock, which was worth roughly $4.2 billion based on the price at yesterday's market close. The purchase made Buffett's company HP's largest stock holder, with an ownership position of roughly 11%.
Image source: The Motley Fool.
So what
Buffett and the Berkshire team have a fantastic track record of identifying stocks at trading levels that leave room for long-term growth, and news that the company has invested in a business often leads to a significant rise in that company's share price. Based on the large share purchase, the Oracle of Omaha clearly believes HP is positioned to deliver strong returns.
Key Data Points
While Buffett has long had a reputation for being somewhat averse to the tech sector, he and the Berkshire Hathaway team have gradually been shifting the company's stock portfolio to have a more technology-heavy focus. Apple is famously the largest position in its stock portfolio and currently accounts for roughly 46% of current holdings, the company bought billions' worth of Verizon stock late in 2020, and it snatched up shares of data services company Snowflake at the company's initial public offering that year as well. HP is the latest addition to the family of Berkshire-backed tech stocks, and the vote of confidence is generating excitement among other investors.
Now what
After climbing 1% in 2021, HP's printer revenue fell 4% year over year in the first quarter, but a 15% uptick in PC hardware sales more than offset the decline. The company's non-GAAP (adjusted) earnings per share came in at $1.10 in Q1, which was above management's midpoint guidance of $1.02 per share. For the full-year period, the hardware maker expects adjusted earnings to be between $4.18 per share and $4.38 per share and free cash flow of at least $4.5 billion.
While Berkshire has recently been warming up to some more growth-dependent tech plays, this was clearly a value-oriented buy. Even after the recent stock price surge, HP still trades at relatively modest valuation multiples.
HP now has a market capitalization of roughly $42.4 billion, and the company is valued at approximately 9.4 times this year's expected earnings and 64% of expected sales. The company also pays a dividend, which currently yields roughly 2.2%.
