Which Tech Stock Is a Buy or Hold This Month: GoPro (GPRO) vs. HP (HPQ)?

The convergence of technological progress and its pervasive application across sectors is setting the stage for substantial expansion in the technology industry in the forthcoming years. In this piece, I evaluated two tech stocks, GoPro, Inc. (GPRO) and HP Inc. (HPQ), to determine which could generate better returns.

Industries are proactively harnessing technology to captivate customers, propel innovation, and amplify effectiveness. Multitudes of companies are embarking on enduring digital transformation endeavors, a trajectory poised to surge alongside the increasing embrace of hybrid work landscapes.

At the forefront of industry trends is the heightened embrace of cloud-native solutions which empower app creation, team coordination, and communication. These infrastructure-agnostic tools seamlessly operate across multiple servers, ensuring effortless integration for all businesses.

Expanding on established tech like applied Artificial Intelligence (AI) and industrialized machine learning, generative AI is also making notable advancements in reshaping the tech realm. It holds the potential to contribute up to $4.4 trillion in economic value, boosting productivity through precise applications and wider usage.

Further amplifying the sector's expansion are additional technological strides, including edge computing, 5G connectivity, blockchain, and augmented reality. These innovations are revolutionizing data processing, communication, security, and immersive experiences, ushering in a new era of technological transformation.

According to ReportLinker, the information technology market is expected to grow at a CAGR of 7.9% and reach $12 trillion by 2027.

In terms of price performance, GPRO declined 1.7% over the past month, while HPQ has gained 6.3%. Moreover, GPRO has plummeted 27.6% over the past six months, while HPQ climbed 7.2%. Also, GPRO has plunged 17.6% over the past nine months compared to HPQ’s 22.7% surge.

But which stock is a better buy now? Let’s find out.

Recent Developments

On May 9, GPRO announced its strategic move to reestablish its camera lineup at pre-pandemic price points aimed at attracting more customers. Further enhancing its approach, the company is enhancing accessibility to the highly sought-after GoPro Subscription, catering to the 2.36 million subscribers.

On March 29, HPQ launched HP Wolf Connect, an IT solution enabling secure remote PC management via robust cellular-based connectivity. Enhancing support efficiency, data security, and asset management, it's expected to elevate customer satisfaction, potentially benefiting the company's growth.

Recent Financial Results

For the second quarter that ended June 30, 2023, GPRO’s revenue decreased 3.9% year-over-year to $241.02 million. Its non-GAAP net loss and non-GAAP loss per share came in at $11.29 million and $0.07, compared to a non-GAAP net income and non-GAAP net income per share of $12.79 million and $0.08, respectively.

However, its cash inflow from investing activities increased 127.4% year-over-year to $55.73 million.

For the second quarter that ended April 30, 2023, HPQ’s net earnings and EPS increased 6.6% and 13.8% year-over-year to $1.07 billion and $1.07, respectively. Its cash inflow from operating activities rose 25.2% from the year-ago value to $636 million. Furthermore, the company’s free cash flow grew 54% year-over-year to $500 million.

Past And Expected Financial Performance

Over the past three years, GPRO’s revenue increased at a CAGR of 4.5%. Its total assets grew at a CAGR of 22% during the same period.

Analysts expect GPRO’s revenue to marginally increase year-over-year to $1.10 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to decline 73.1% from the prior year to $0.13.

HPQ’s normalized net income increased at a CAGR of 10.4% over the past three years. Its EPS and total assets grew at CAGRs of 9% and 2.5% over the same time frame, respectively.

HPQ’s revenue is expected to grow 3.5% year-over-year to $56.44 billion for the fiscal year (ending October 2024). In addition, analysts expect the company’s EPS for the same period to increase 6.1% year-over-year to $3.57.

Valuation

In terms of trailing-12-month Price/Sales, HPQ is currently trading at 0.58x, 4.9% lower than GPRO, which is trading at 0.61x. Moreover, HPQ’s trailing-12-month EV/EBITDA multiple of 8.13 is 88.6% lower than GPRO’s 71.12. Additionally, HPQ’s trailing-12-month Price/Cash Flow of 11.05x is 79.2% lower than GPRO’s 53.21x.

Thus, HPQ is relatively affordable.

Profitability

HPQ’s trailing-12-month revenue is 53.5 times what GPRO generates. Moreover, HPQ is more profitable, with a trailing-12-month EBITDA margin of 9.25% compared to GPRO’s 0.71%. Also, HPQ’s trailing-12-month net income margin of 4.75% compares with GPRO’s negative 0.64%.

In addition, HPQ’s trailing-12-month levered FCF margin of 4.28% compares to GPRO’s 2.06%. Furthermore, HPQ’s trailing-12-month ROTA and ROTC of 10.42% and 30.75% compare to GPRO’s negative 0.06% and negative 0.05%, respectively.

POWR Ratings

GPRO has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, HPQ has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GPRO has a B grade for Value, in sync with its lower-than-industry valuation. GPRO has a forward EV/Sales and Price/Sales of 0.48x and 0.58x, which is 59.9% and 33.6% lower than the industry averages of 1.20x and 0.88x, respectively.

HPQ also has a B grade for Value, justified by its lower-than-industry valuation. HPQ’s forward EV/Sales and Price/Sales of 0.78x and 0.59x compare to the industry averages of 2.92x and 2.81x, respectively.

In addition, GPRO has an F grade for growth, justified by its revenue’s 2% CAGR decline over the past five years. On the other hand, HPQ has a C grade for Growth, in sync with its revenue’s increase at a marginal CAGR over the past five years.

Of the 43 stocks in the Technology - Hardware industry, GPRO is ranked #28, while HPQ is ranked #15. 

Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Stability, and Quality. Click here to view GPRO’s ratings. Get all HPQ ratings here.

The Winner

The enthusiastic adoption of cloud-native solutions and cutting-edge technologies like AI, industrialized machine learning, edge computing, 5G connectivity, blockchain, and augmented reality is paving the way for significant growth in the technology sector in the upcoming years.

Prominent tech stocks GRPO and HPQ are positioned to benefit from the industry’s promising growth prospects. However, considering GPRO’s relatively weak financial performance and higher valuation, its competitor, HPQ, could be a better buy now.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Hardware industry here.  

What To Do Next?

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HPQ shares were trading at $32.72 per share on Friday afternoon, up $0.02 (+0.06%). Year-to-date, HPQ has gained 23.97%, versus a 18.98% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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