Why HP Stock Is Down By 6% Today

Key Insights

• Morgan Stanley cuts its outlook for PC sales and downgrades HP and Dell. 
• The demand boost from the pandemic may be over, and PC sales could get back to the previous downside trend. 
• HP stock may need additional upside catalysts to get back to recent highs near the $40 level. 

HP Stock Is Under Pressure After Analyst Downgrade

Shares of HP gained downside momentum after Morgan Stanley downgraded the stock due to expectations of weak PC sales. Dell was downgraded as well.

Morgan Stanley believes that hardware budgets could be cut, which would hurt HP sales. In addition, demand could slow down as the world gets back to normal after two years of pandemic, which boosted PC demand.

The market reacted nervously to the analyst downsgrade, and HP stock moved from the $40 level to the $36 level.  Yesterday, HP stock made an attempt to settle above yearly highs, but the downgrade has clearly hurt the positive momentum.

What’s Next For HP Stock?

Analysts expect that HP will report earnings of $4.28 per share in the current year and $4.43 per share in the next year, so the stock is trading at just 8 forward P/E, which looks cheap for the current market environment.

However, Dell is even cheaper at 7 forward P/E, so the market does not have too much appetite for computer hardware stocks.

In this environment, worries about slowing demand may ultimately put more pressure on HP stock. Companies and individuals that have upgraded their hardware in 2020 – 2021 may not rush to renew it, and PC sales may get back to the previous downside trend.

This is a material risk for HP stock, which may need additional positive catalysts to get back to recent highs. At the same time, the current valuation levels may provide some support to the stock in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.