August 31, 2011 | In: Technology
Is HPQ a Buy or Sell?
I was just reading an article about HP producing more of its TouchPad tablets running its soon-to-be-obsolete WebOS. HP apparently is selling these tablets at $99 each, losing about $229 for each tablet (the cost for producing each TouchPad is around $328). Of course, most of us investors are half-brained when it comes to marketing, and maybe here’s what HP is doing:
- Sell these tablets at a loss.
- Grab some market share from Apple’s iPad (the main competitor to the TouchPad).
- When the new HP tablets are released, people will be used to the old HP tablets and the new tablets will be selling like hotcakes.
- HP will rule the tablet market.
The plan above is very nice, except, of course, it has many flaws:
- Most of the people who bought these TouchPads bought them because they are cheap, and not because they needed them or wanted them.
- What’s the point of buying a new HP tablet if the old HP tablet is using a completely different OS. And even if they provide a way to migrate from one OS to the other, who would want to go through this trouble?
- With its huge cash reserves, Apple will crush HP in an instant.
- If HP continues with its strange (if not crazy) marketing strategies draining its cash reserves, the company won’t even exist to release its next generation of tablets.
Now, judging from what HP is doing since the departure of Mark Hurd over a scandal that wasn’t really a scandal, I’d say that the stock is a sell, and not only a sell, it is a very very strong sell. HPQ dropped from $46 to $26 (or 43%) since Hurd left just over a year ago, take a look at the below chart (courtesy of Google finance):
Now if you want to look also at the technical details of HPQ, then you can easily see that the stock is bearish on both the short and the medium term, and very bearish on the long term. HPQ is a dead stock, and only dumb investors will buy it long term.
It’s obvious that the problem lies in HP’s management: the company is not sure of its future, it’s not sure of which products to continue/discontinue (including its laptop market – by the way, HP is the number one laptop seller in the world, if I’m not mistaken), and it has no idea what to do with its ever dwindling cash reserves (now they’re subsidizing their own products, who knows what crazy idea they’ll have next to spend all that money).
Conclusion: HPQ is no longer a buy, in fact, it stopped being a buy for more than year now, it’s a sell, sell, sell!