Hewlett-Packard (NYSE: HPQ) shareholders have been through a lot this year.

But since investing is more about looking forward than looking back, how does HP's future look? After everything the company has been through, are HP shares a buy, sell, or hold?

Buy:

  • Valuation: Compared with its closest domestic competitor, Dell (Nasdaq: DELL), HP looks cheap. The company's P/E and P/S ratios are pretty comparable, with HP sporting 7.9 and 0.4, respectively, compared with Dell's 7.6 and 0.4. But with HP shares, investors get more growth for their buck. HP's five-year growth rates for sales and earnings are 6.8% and 8.9%, respectively. Those figures top Dell's respective digits of 2% and negative 1.7%.
  • Turnaround: One reason HP shares look so cheap is because of all of its strategic blunders and missteps this year, which has caused shares to jettison roughly 39% of their value so far this year as of this writing. If new CEO Meg Whitman can leverage her experience running eBay (Nasdaq: EBAY) and successfully engineer a turnaround and restore the bellwether to its former glory, then there will be a lot of upside from current prices.

Sell:

  • Board: HP has a terrible board. Terrible. We're talking about a group of directors that's led by a chairman who's an Apple (Nasdaq: AAPL) Mac user and that hired ex-CEO Leo Apotheker before many of them had even met him. Even though their sole responsibility is representing shareholders, they were more concerned with securing their seats at the height of the debacle, rather than fixing the problems they contributed to. Foolish favorite corporate-governance expert Nell Minow also has some choice words on the subject that are well worth the read.
  • Mobile: Mobile is going to be the next trillion-dollar revolution. Movements this big come around once in a lifetime, and HP has mostly missed the boat on this one. It tried its darnedest to buy a seat at the table with its Palm acquisition, but we all know how that turned out. HP is trying to reinvigorate its mobile strategy by making webOS open source, but the damage is done with its mobile prospects. Google (Nasdaq: GOOG) Android and iOS have too much momentum for HP to ever catch up.

Hold:

  • Meg Whitman: I have reservations about Whitman. eBay was a totally different beast, and the task she's faced with is immense. She has a decent chance to pull off a turnaround, but there's a lot of uncertainty in the years ahead before we can gauge success or failure. She has even said 2012 is going to be a rough year of regrouping and licking wounds and that 2013 is the year investors should bank on. That's a long time to wait while rivals charge ahead, but it can be done. If you think Whitman has what it takes to revive the stumbling giant, then you should hang on and give her the benefit of the doubt.
  • Software: The Autonomy acquisition was needlessly ginormous and borderline excessive, but it also marks an important strategic focus for HP going forward. Expanding its higher-margin software and services segment is the right move, and a way to differentiate itself to enterprise customers amid the commoditized PC business. Apotheker took it a step too far by trying to reinvent the entire company into a software player to challenge IBM (NYSE: IBM) and Oracle (Nasdaq: ORCL), but building up its software position will ultimately strengthen the company overall.

The verdict
I think HP is a hold. Even as its valuation seems compelling on its surface, it could end up being more of a value trap than a value buy. A turnaround is possible, but the odds are hardly stacked in favor of such an outcome.

HP's board remains a corporate-governance travesty, but that's only one aspect of the company. The board members desperately need to be replaced, but they're also aware of how badly they are now perceived. Hopefully that cognizance will facilitate some improvements in their performance, but for now they're still a liability. I don't think HP will ever make it in mobile, but it also has other businesses to fall back on.

I'll give Whitman a chance. It's a pretty even toss-up in my mind on whether she can pull it off. She has reputable experience, but it's not the most relevant to HP's business. If she can focus and expand HP's strategic direction, it might just prove to be worth the wait for existing shareholders.

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