Last quarter, my concern with Hewlett-Packard (NYSE:HPQ) was its operating margins. Although they are improving, they still lag the margins at competitors Canon (NYSE:CAJ), Motley Fool Stock Advisor recommendation Dell (NASDAQ:DELL), and IBM (NYSE:IBM).

In the latest quarter, there was another welcome increase in operating margins from 5.4% a year ago to 6.0% now. But, consider that the personal systems business, which brought in 30% of total sales, has 1.2% margins and Dell has 8.5%. There is still a lot of work to do on the PC side of the business.

Today's news from HP was certainly upbeat. Revenue increased 8%, helped by record revenues in every business and every region. Net income increased 27%. Helping net income was a $107 million operating profit at the enterprise storage and servers division, which made up 19% of total sales. Heads rolled there last quarter over a $208 million operating loss. But this quarter's margin was still a slim 2.6%.

The wish of every HP shareholder is for the rest of the company to achieve the 16% margins at the imaging and printing division, which contributed 30% to total sales.

The company's 2005 first-half estimates are nothing to cheer about either. Sales are forecast to rise less than 5%. Earnings of $0.72 to $0.74 a share support analyst estimates that the company will earn $1.49 in 2005 -- a forward price-to-earnings (P/E) ratio of 14.

Before shouting, "Wow, look at that low P/E," consider two troubling signs. Bill Mann pointed out in September that HP had a big inventory hair ball. There was a 17% increase in year-over-year inventories reported this quarter -- far outpacing the company's revenue growth. And, remember those high-margin printers? Dell is now in this business, and there was a decline in single-function printer sales and price erosion last quarter.

Despite weak operating margins, HP does have a strong balance sheet. Total debt, at $7.1 billion, is outweighed by $12.7 billion in cash.

So let's add it up. The company's own forecast for revenue growth is anemic. Earnings growth could fall victim to an inventory adjustment or margin slippage in printers (or any other area, for that matter). Although there is lots of cash, the company's low operating margins still need to reach peer levels. At today's stock price, the company offers investors marginal value.

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Fool contributor W.D. Crotty does not stock in any of the companies mentioned.