The stock market has grown significantly more optimistic regarding the situation at Hewlett-Packard (HPQ 0.31%) over the past year, with shares nearly 80% above the 52-week low. The expectation is that HP will be able to eventually return to growth, with CEO Meg Whitman steering the company back to prominence. But there are some big problems with this story, and HP will likely continue to struggle in 2014 and beyond.

Declining business
Printing, PCs, and enterprise hardware accounted for 75% of HP's revenue in fiscal 2013. Each division is in a long-term, sustained decline. The commercial printing market is shrinking, with HP's printing revenue declining by 3% in 2013, although the operating margin is in the mid-double digits and likely sustainable. The PC market continues to contract, and with HP earning a 3% operating margin, even gaining market share would do little in terms of profits. The enterprise group, which includes servers, is declining as big web companies are designing their own servers and bypassing vendors like HP. The enterprise group shrunk by 5% in 2013, with operating margin shrinking by 2.1 percentage points.

These businesses, which make up the bulk of HP, are unlikely to reverse course. This means that the remaining 25% of the company needs to drive growth. That doesn't look likely.

HP is bad at enterprise services
With HP's printing, PC, and server businesses all in long-term decline, growth will have to come from somewhere else. HP has grown its enterprise services business into a $23 billion operation, but even this is shrinking. And what's worse, HP's services operating margin in fiscal 2013 was an abysmal 2.9%.

Xerox (XRX), a competitor in many areas, doesn't seem to have the same problem. Xerox managed a 9.9% operating margin in its services division in the most recent quarter while still managing to grow revenue in the low single-digits. Xerox and HP compete in areas like health-care services, payroll services, and document processing services, but somehow Xerox manages to earn a greater annual profit from services than HP on about half of the revenue.

What this tells me is that HP has little discipline in choosing service contracts, focusing on growing revenue at any cost instead of generating profits. This could be because HP simply isn't as good as companies like Xerox at delivering higher-margin services, like those in financial services and transportation, instead opting for low-hanging fruit with little profit potential. Regardless of the reason, HP's enterprise services division is not capable of driving growth without some serious changes.

Going it alone at 3-D printing
Toward the end of last year, HP announced that it would be entering the 3-D printing market in 2014. In a surprise twist, the company also stated that it would not acquire its way into the industry, instead growing its business organically. This makes sense, given the stratospheric valuations being given to 3-D printing companies like 3D Systems (DDD 0.57%). 3D Systems trades at more than 20 times trailing 12-month sales, and more than 200 times TTM net income.

Making acquisitions in this space would be about the worst move HP could make, and Whitman appears to be trying to change HP's historical tendency to make costly, questionable acquisitions. It will be much less expensive for HP to grow its own 3-D printing business, and the company has the cash flow to easily absorb the initial losses as it expands the business.

One effect HP's entry could have on the industry is to bring the lofty valuations given to 3-D printing companies back to Earth. 3-D printing has promise for certain applications, but 3D Systems is being priced well beyond this promise. If HP can become a major player in the industry, the euphoria surrounding the 3-D printing stocks will somewhat abate, given how easily a tech dinosaur broke into the market. It's hard to imagine 3D Systems remaining at such a high valuation for very long.

For HP, 3-D printing isn't a game changer. But it could eventually add a few billion dollars in revenue if HP can grab a decent share of the market.

The bottom line
Most of HP's businesses are declining, and its enterprise services business is far less profitable than that of rival Xerox. 3-D printing has some potential, but there's simply nowhere for growth to come from over the next few years. Most of what HP is doing is managing the decline of its businesses. It will be many years before HP can have a chance at returning to consistent earnings growth -- if it ever does.

Editor's Note: HP is up nearly 80% from its low, this version has been corrected.