Last update on 2024-06-07

HP (HPQ) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

In-depth Piotroski F-Score analysis of HP (HPQ) for 2023, with a final score of 7/9, highlighting financial performance across various criteria.

Short Analysis - Piotroski Score: 7

We're running HP (HPQ) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

HP Inc (HPQ) scored 7 out of 9 on the Piotroski F-Score, a measure evaluating the company's financial position based on profitability, liquidity, and operational efficiency. The company exhibits strong profitability with positive net income ($3.263 billion) and cash flow from operations ($3.571 billion) higher than its net income. Its return on assets (ROA) has improved slightly, and it demonstrated a higher year-over-year gross margin. Additionally, HPQ engaged in share buybacks, reducing outstanding shares from 1.038 billion to 992 million, which is seen positively. However, two criteria did not score points - leverage has increased indicating higher debt relative to equity, and the current ratio has declined to 0.7341, suggesting weaker liquidity. Also, the company's asset turnover ratio has decreased, pointing to reduced efficiency in using its assets to generate revenue.

Insights for Value Investors Seeking Stable Income

Despite some areas of concern such as increasing leverage and declining liquidity, HP Inc. (HPQ) demonstrates solid financial health with a Piotroski F-Score of 7 and shows strong profitability indicators. The positive cash flow, net income, return on assets, and share buybacks are promising signs for investors. It may be worthy of consideration for investors looking for resilient companies with profitable operations, though they should be mindful of the liquidity and leverage risks.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of HP (HPQ)

Company has a positive net income?

The criterion examines whether HPQ's netincome for the year is positive. A positive netincome indicates profitability.

HPQ's netincome for 2023 is reported at $3.263 billion, marking a positive figure. Historically, the company's netincome has shown significant fluctuation, with notable peaks such as in 2011 with $8.761 billion and a significant downturn in 2012 with -$12.65 billion. Despite this volatility, the recent positive trend post-2021 suggests stabilization, adding 1 point for 2023. Thus, HPQ earns 1 point for having positive netincome in 2023, which underscores a profitable year and reflects operational success.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a critical indicator of a company's financial health, representing the cash generated by business operations. It reflects company's ability to generate sufficient cash flow to cover operating expenses and invest in business growth.

HP has reported a positive CFO of $3,571,000,000 in 2023. In terms of Piotroski score, this adds 1 point to their tally. To offer a comprehensive perspective, it is important to review the trend over the last two decades: Starting from 2003 with $6.06 billion, the CFO fluctuated over years reaching a peak in 2008 at $14.59 billion before overall trending downwards. Notably, from 2013 to 2023, a general decline is evident, with values drastically falling from over $12 billion in 2014 to the current $3.57 billion. This skittish trend reflects some underlying financial difficulties that may need to be addressed to stabilize and improve operational cash flows.

Return on Assets (ROA) are growing?

Change in ROA compares the return on assets from one period to the next. A positive change indicates improved profitability and efficiency in utilizing assets.

The Return on Assets (ROA) for HP, Inc. (HPQ) increased from 0.0812 in 2022 to 0.0864 in 2023. This represents a positive shift in the company's ability to generate profit from its assets, earning an additional point in the Piotroski Score. This trend suggests that HP is incrementally improving its efficiency in asset utilization. Historically, HP’s ROA has fluctuated, with 2023 showing a marginal improvement from the previous year, albeit still being well below the industry median ROA of 0.35. This positive trajectory, while modest, can still be viewed favorably in the context of the company's long-term performance.

Operating Cashflow are higher than Netincome?

Operating Cash Flow compared to Net Income evaluates a company’s cash-generating efficiency, revealing its ability to generate cash in relation to its accounting income.

For HP (HPQ) in 2023, the Operating Cash Flow is $3.571 billion, while the Net Income stands at $3.263 billion. The Operating Cash Flow is indeed higher than the Net Income, yielding a positive signal and adding 1 point to the company's Piotroski Score. This demonstrates HP's efficient cash generation relative to its net earnings. Over the last 20 years, HP’s Operating Cash Flow has shown significant fluctuations, particularly depicting incredibly robust figures in the mid-2000s, peaking at $14.591 billion in 2008. However, there has been a noticeable downward trend in recent years. Nonetheless, the 2023 figure surpassing the Net Income is a favorable indicator.

Liquidity of HP (HPQ)

Leverage is declining?

Leverage refers to the ratio of a company's total debt to its shareholder equity, and it's crucial as it indicates the degree to which a company is financing its operations through debt.

As per the data, HP's Leverage increased from 0.2724 in 2022 to 0.3032 in 2023, indicating that the company has increased its debt relative to its equity. Over the last two decades, the company's leverage has fluctuated significantly, with an apparent upward trend in recent years. For instance, leverage ratios were as low as 0.0439 in 2005 and saw a noticeable spike to 0.3032 in 2022. The continued increase to 0.3032 in 2023 signifies further reliance on debt financing, which could pose potential risks, particularly in a rising interest rate environment. This trend is not favorable, hence no point is added for the criterion.

Current Ratio is growing?

Current Ratio measures a company's ability to cover its short-term liabilities with its short-term assets. It is important because it indicates liquidity.

In 2023, HPQ’s Current Ratio stands at 0.7341, down from 0.7536 in 2022. This decrease in Current Ratio implies a decline in HP's short-term liquidity position, signalling a lesser ability to cover short-term obligations. Given the trend over the last 20 years, where the Current Ratio has generally declined from 1.5395 in 2003 to its current level, and is consistently below the industry median (ranging from 1.77 to 2.3618), it indicates a potential liquidity concern. Comparing to 2023’s industry median of 2.3065, HPQ’s Current Ratio shows a troubling performance. Hence, 0 points.

Number of shares not diluted?

Change in outstanding shares is crucial as a decrease often suggests share buybacks, which can signal shareholder value and confidence in future performance.

HP's outstanding shares have decreased from 1.038 billion in 2022 to 992 million in 2023, adding 1 point to the Piotroski score. This trend is positive, suggesting that HP has engaged in share buybacks, a tactic often interpreted as a sign of confidence from the management in the company’s future prospects. It also indicates potential shareholder value generation, as buybacks can lead to earnings per share (EPS) improvements. Notably, the reduction over the last two decades from 3.063 billion in 2003 to 992 million in 2023 underscores a consistent trend towards consolidation and efficiency.

Operating of HP (HPQ)

Cross Margin is growing?

The change in Gross Margin evaluates whether a company is becoming more efficient at converting sales into actual profit. An increase in Gross Margin suggests better cost control and improved pricing strategy, making it a vital component in profitability analysis.

In 2023, HP's Gross Margin stands at 0.2142, compared to 0.1949 in 2022. This represents an increase, which is a positive indicator, adding 1 point to the Piotroski score. Over the last 20 years, HP's Gross Margin has fluctuated but has generally trailed the Industry Median, which reached a high of 0.458 in 2017 and remains at 0.3501 in 2023. HP's improvement this year reflects better operational efficiency, though it still lags behind the industry median.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets in generating sales revenue. A higher ratio suggests more efficient utilization of assets.

In 2023, HP (HPQ) reported an Asset Turnover Ratio of 1.423, a decline from the 1.6319 recorded in 2022. This reduction indicates a decreased efficiency in utilizing assets to generate revenue. Historically, HP has shown fluctuations in this metric, peaking at 1.7316 in 2018. Given the drop from 2022 to 2023, the Asset Turnover ratio has not increased; therefore, no point is added. This trend might suggest operational challenges or suboptimal asset utilization in recent times, necessitating strategic adjustments.