HP Inc. vs. Logitech: Which Computer Hardware Stock is a Better Buy?

HP Inc. (HPQ) in Palo Alto, Calif., and Logitech International S.A. (LOGI) in Apples, Switzerland are two well-known computer hardware manufacturers globally. HPQ provides personal computing and other access devices, imaging and printing products, related technologies, software, solutions, and services to individual consumers, small- and medium-sized businesses, enterprises, government, health, and education sectors worldwide. LOGI manufactures personal computer input devices that allow people to connect through music, gaming, video, computing, and other digital platforms worldwide. It offers its products to a network of domestic and international customers, including direct sales to retailers, e-tailers, and indirect sales through distributors.

With delays in office-reopening plans, enterprises are planning to strengthen their remote workforces. So, the computer hardware industry has been witnessing significant demand. Furthermore, the ongoing digital transformation is driving the need for computer hardware. The global computer hardware market is expected to grow at a 6% CAGR to $1.18 trillion by 2025. So, both HPQ and LOGI should benefit.

But while LOGI’s shares have declined 15% in price over the past nine months, HPQ surged 8.9%. In terms of their past year’s performance, HPQ is a clear winner with 45.9% gains versus LOGI’s 15% returns. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

HPQ’s net revenue for its fiscal third quarter, ended July 31, 2021, increased 7% year-over-year to $15.29 billion. The company’s non-GAAP earnings from operations came in at $1.50 billion, up 71.1% from the prior-year period. While its non-GAAP net earnings increased 70.7% year-over-year to $1.20 billion, its non-GAAP EPS increased 104.1% to $1. The company had $3.44 billion in cash and cash equivalents as of July 31, 2021.

For its fiscal first quarter, ended June 30, 2021, LOGI’s net sales increased 65.7% year-over-year to $1.31 billion. The company’s non-GAAP gross profit came in at $574.36 million, up 84.9% from the prior-year period. Its non-GAAP operating income was $234.54 million, representing a 99.9% year-over-year improvement. LOGI’s $209.81 million non-GAAP net income for the quarter represents a 92.7% rise from the prior-year period. Its non-GAAP EPS increased 90.6% year-over-year to $1.22. The company had $1.50 billion in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

HPQ’s revenue and EBITDA have grown at CAGRs of 2.9% and 8.9%, respectively, over the past three years. The company’s levered free cash flow has grown at a 13.9% CAGR over the past three years.

Analysts expect HPQ’s EPS to increase 63.6% year-over-year in the current year and 1.6% next year. Its revenue is expected to increase 10% year-over-year in the current year and decline marginally next year. Analysts expect the stock’s EPS to grow at a 16.5% rate per annum over the next five years.

In comparison, LOGI’s revenue and EBITDA have grown at CAGRs of 29.7% and 65.5%, respectively, over the past three years. The company’s levered free cash flow has grown at a 46.4% CAGR over the past three years.

Analysts expect LOGI’s EPS to decrease 31.3% year-over-year in the current year and rise 8.4% next year. Its revenue is expected to grow 1.2% in the current year and 5.6% next year. The stock’s EPS is expected to decline at a 6.4% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward P/E, LOGI is currently trading at 19.41x, which is 158.5% higher than HPQ’s 7.51x. In terms of forward EV/Sales, LOGI’s 2.53x is 328.8% higher than HPQ’s 0.59x.

Profitability

HPQ’s trailing-12-month revenue is almost 10.8 times higher than HPQ’s. However, LOGI is more profitable, with a 45.3% gross profit margin versus HPQ’s 20.7%.

Also, LOGI’s EBITDA and net income margins of 23.5% and 18.4%, respectively, compare with HPQ’s 9.8% and 6.6%.

POWR Ratings

While LOGI has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, HPQ has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.  

HPQ has an A grade for Value, which is consistent with its lower-than-industry valuation ratios. HPQ’s 0.57x trailing-12-month Price/Sales is 86.6% lower than the 4.25x industry average. However, LOGI’s C grade for Value reflects its higher-than-industry valuation. The company has a 6.27x trailing-12-month Price/Sales, which is 32.1% higher than the 4.75x industry average. LOGI has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. LOGI’s 18.4% trailing-12-month net income margin is 209.6% higher than the 5.9% industry average. However, HPQ’s C grade for Quality is in sync with its relatively lower profitability ratios.

Of the 47 stocks in the B-rated Technology - Hardware industry, LOGI is ranked #31, while HPQ is ranked #6.

Beyond what we’ve stated above, our POWR Ratings system has also rated HPQ and LOGI for Growth, Sentiment, Momentum, and Stability. Get all LOGI ratings here. Also, click here to see the additional POWR Ratings for HPQ. 

The Winner

The need for efficient performance, high storage, and long battery life should enable computer hardware companies to benefit in this digital era. While both HPQ and LOGI should benefit from the industry tailwinds, we think a relatively lower valuation makes HPQ a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Hardware industry.

HPQ shares were trading at $28.09 per share on Monday morning, up $0.20 (+0.72%). Year-to-date, HPQ has gained 16.46%, versus a 18.73% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

More...