"... does the fact that HP's getting better mean the stock itself is objectively good? I could actually argue either way." -- Me, writing last week

Well, after reading the numbers Hewlett-Packard (NYSE: HPQ) released on Tuesday, I'm affirmatively moving over to the "HP is good" camp. HP outperformed all expectations last quarter (its first of the new fiscal year). Based on the new cash flow numbers, I now believe this stock's a "buy."

Stay tuned
More on my newfound bullishness in a minute. First, let's take a quick stroll through the numbers. HP grew its revenues 13% in fiscal Q1 2008, cresting $28.5 billion. In getting to this number, the company benefited from the incredible shrinking dollar, which contributed 5% of the revenue growth as rupees, rubles, and yuan earned abroad converted back more and more greenbacks. (If you're wondering, I'm not picking those currencies at random. HP achieved its strongest sales growth -- 22% -- in the "Asia Pacific" region. Sales in Brazil, Russia, India, and China grew especially fast, up 35% year over year.)

Profits-wise, HP scored a double hat trick, expanding operating margins in all six of its business segments. Companywide operating margins widened 1.8% to 9.2%. And you know what happens when you mate expanding margins to rapidly growing revenues -- profits just rained down on the bottom line, flooding diluted earnings per share 45% higher, to $0.80 per share.

HP still isn't pulling down the double-digit operating margins of rivals like Apple (Nasdaq: AAPL), Canon (NYSE: CAJ), or IBM (NYSE: IBM). But it's almost twice as profitable per dollar of revenue as the average computer shop, and about 40% better than archrival Dell (Nasdaq: DELL).

That's GAAP, right?
Yes, GAAP. Thanks for reminding me. I don't want to forget to discuss the cash flow picture here. Free cash flow tipped the scales at $2.6 billion in Q1. Add to that the $7.3 billion in cash profits that HP generated over its previous three quarters, and this stock now sells for the low, low price of just 12 times free cash flow.

Foolish takeaway
Maybe you're looking at HP's 8% leap in stock price yesterday and thinking you've missed the boat. Maybe you think that an 18 P/E is just a bit too much to pay for a projected 16% grower. If that's the case, then take comfort in the fact that HP's GAAP figures understate the company's cash profits by more than 20%. From a price-to-free cash flow perspective, this stock looks significantly undervalued.

Consider buying HP.

Read more about HP in:

Dell is both an Inside Value and a Stock Advisor recommendation. Apple was picked in Stock Advisor.

Fool contributor Rich Smith does not own shares of any company named above. Get your free refresher course in The Motley Fool's disclosure policy right here.