HP Is Up By 17%, Here Is Why

Key Insights

• Berkshire Hathaway buys a stake in HP. 
• The stock rallies as Buffett’s purchases typically provide significant support to stock in the near term as other investors rush to buy shares. 
• In the longer run, traders will focus on post-pandemic dynamics of demand for HP products.

HP Stock Rallies After Buffett’s Berkshire Hathaway Discloses A Stake In The company

Shares of HP  gained strong upside momentum after Berkshire Hathaway revealed that it had purchased an almost 10% stake in the company.

Buffett’s purchases typically move markets, so it’s not surprising to see that HP shares are up by more than 17% in today’s trading.

It should be noted that the stock has found itself under material pressure at the end of March after it was downgraded by Morgan Stanley. Analysts believed that hardware budgets would be cut in 2022, while demand would slow down as the world recovers and gets back to normal life after two years of the pandemic.

However, Buffett is not worried about short-term challenges, and he is ready to bet that HP would show growth in the years to come.

What’s Next For HP Stock?

Currently, analysts expect that HP will report earnings of $4.29 per share in 2022 and earnings of $4.43 per share in 2023, so the stock is trading at 9 forward P/E. The expected earnings growth does not look impressive, which explains the cheap valuation of the stock.

However, Warren Buffett and his team at Berkshire Hathaway are famous for taking a long-term view, so they are certainly not worried about near-term fluctuations of the company’s earnings.

Buffett’s purchases are followed by an army of investors who would also buy the stock, so HP may continue to move higher in the upcoming trading sessions. However, it remains to be seen whether the impulse from Buffett’s purchase will be sufficient enough for sustainable upside momentum in the near term as the risks from declining demand are real.

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