Hewlett-Packard Company (HPQ): Can the Dead Cat Keep Bouncing?

Valuation

How should we compare these companies? They are all technology companies, but they operate in different niches, and these niches have different moats and margins.

IBM and Oracle focus on the high end of the value chain, focusing on businesses and software. HP and Lenovo focus on commodity software and their profit margins show it. Another area of concern is the amount of debt outstanding in HP compared to its competitors.

With shrinking margins, HP will have fewer levers to pull in the future when it comes to paying its debt if there is any sort of economic down turn. Sure HP looks cheap, and with good reason. With a hefty debt load, shrinking revenue, and profit margins finally stabilizing, it should be valued cheaply.

Foolish bottom line

Avoid HP. IBM and Oracle have been displacing HP within the lucrative business markets, like hardware and analytics software. Lenovo seems better at producing low cost laptops. HP is just the middle child, coasting along and watching its margins erode. Until Whitman can show that HP can be polished up and turned around, this company will continue to get slapped around by the invisible hand of the market.

The article Hewlett-Packard: Can the Dead Cat Keep Bouncing? originally appeared on Fool.com and is written by Wes Patoka.