Over the past six months, Hewlett Packard Enterprise’s stock price fell to $17.98. Shareholders have lost 17.6% of their capital, disappointing when considering the S&P 500 was flat. This might have investors contemplating their next move.
Is now the time to buy Hewlett Packard Enterprise, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Hewlett Packard Enterprise Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why HPE doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Hewlett Packard Enterprise’s 2.9% annualized revenue growth over the last five years was sluggish. This was below our standards. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Hewlett Packard Enterprise’s unimpressive 4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Hewlett Packard Enterprise’s margin dropped by 6.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Hewlett Packard Enterprise’s free cash flow margin for the trailing 12 months was 1.3%.
Final Judgment
Hewlett Packard Enterprise falls short of our quality standards. Following the recent decline, the stock trades at 9.2× forward P/E (or $17.98 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
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