Hewlett-Packard (NYSE:HPQ) has been one of the best-performing stocks this year, up by more than 50%. The stock rallied, in part, on the turnaround hopes of optimistic investors hoping to beat the market. This turnaround has failed to materialize so far, as the company is still seeing declining revenue in its core businesses. HP has had trouble adjusting to shifting enterprise and consumer markets, and it looks increasingly unlikely that the company will be able to turn things around on time.

Weak earnings report
HP's latest earnings report was a severe disappointment to investors, especially in terms of hardware sales. While non-GAAP diluted EPS of $0.86 met the consensus, this figure was down 14% from the previous year. Revenue of $27.2 billion was down 8% year over year and slightly missed the $27.3 billion consensus.

The worst performing segment was personal systems, with an 11% decline in sales, while enterprise group revenue dropped 9%. What's more, PC sales are expected to decline further this year, even in emerging markets, which further underscores the need for HP to focus on its other segments. 

Still, there were some bright spots, as personal systems revenue dropped less than in the last quarter. Another positive development for the company is its recently announced data analytics deal with Cerner, which is expected to boost HP's position in the health-care IT business, an avenue that provides significant opportunities for growth.

What really perplexed investors was the outlook, which came in well below expectations, leading to a dramatic fall in stock price. The company's turnaround was previously seen gaining traction in fiscal 2014, but CEO Meg Whitman has now stated that revenue growth for the coming fiscal year is "unlikely."  

Still, she was fairly upbeat about the company's results, saying they reflected progress in the company's turnaround effort. Yet, compare these results to those of its major competitor in the personal systems space, Lenovo (OTC:LNVGY).

In the most recent quarter, Lenovo overtook HP to become the world's No. 1 PC maker. Somehow, the company is managing to increase earnings and revenue in a declining market, which is evidence of its outstanding execution, especially in China.

For its latest report, revenue was up 10% year over year and 12% sequentially. While notebooks are still Lenovo's bread-and-butter product, investment in tablets and smartphones has been paying off. The company is set to release a number of new products for the holiday season. Its new offerings include a tablet and a smartphone, meant to compete with the more established names in mobile computing.

Too little, too late?
HP's revised outlook comes amid growing speculation that the company will not be able to meet its turnaround goals. Part of the problem is that, like many "old tech" companies, HP has been slow to recognize and adapt to major industry shifts such as mobile and cloud computing. Only recently did the company begin to mention cloud computing at all, which has not been helping its enterprise segments.

The importance of cloud computing was something that competitor Cisco Systems (NASDAQ:CSCO) recognized much sooner, and the company seems focused on this avenue. In 2013 alone, Cisco purchased six companies related to cloud-based services, all of which were, presumably, meant to boost the company's competitiveness in the field.

According to the company's forecasts, global data center traffic will grow nearly fourfold by 2016, and by that time, two-thirds of all data-center traffic will come from the cloud. Its own data center segment grew by 43% year over year, according to the latest report.

Yet, according to many, HP also faces problems in terms of execution, especially in the enterprise group segment, which is seen as crucial to the company's recovery efforts. For example, it remains doubtful that the company will be able to cut costs faster than its revenue drops, as it has already laid off a substantial amount of its workforce. In any case, it is clear by now that HP's restructuring and road to recovery will be fraught with difficulties.

Valuations and metrics
HP currently has a negative price-to-earnings ratio, so comparisons are, perhaps, best made in terms of sales. This price-to-sale ratio is very low for HP at approximately 0.4, compared to Cisco's 2.6. A better comparison is probably with Lenovo, as it is also primarily a hardware maker, which also has a very low price-to-sales ratio of 0.3. HP has a negative return on equity as well as a negative profit margin, and a total debt-to-equity ratio of more than 99. It's hard to make a case for the stock based on these metrics.

The bottom line
HP's latest earnings report makes it clear that the company still has plenty of work to do in reaching its turnaround goals, now behind schedule. Revenue is still dropping in its core segments, and results aren't expected to be much better in fiscal 2014. The stock has performed very well this year, partly as a result of turnaround hopes. Yet, it looks increasingly unlikely that the company will be able to catch up, unless it manages to turn around its enterprise group segment. As such, cautious investors may be best off waiting for more tangible signs of improvement. 

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.