Why is HP stock down by 6% today?

Tips

• Morgan Stanley lowers its PC sales forecast and downgrades HP and Dell.

• The pandemic's demand boost may have worn off, and PC sales may revert to their normal downward trajectory.

• HP stock may require additional upside catalysts to return to recent highs above $40.

• HP stock is under pressure following an analyst downgrade.

HP shares fell after Morgan Stanley downgraded the stock owing to concerns of sluggish PC sales. Dell was also downgraded.

Morgan Stanley predicts that hardware budgets could be reduced, hurting HP sales. Furthermore, demand may drop as the world returns to normalcy following a two-year epidemic that boosted PC consumption.

The market reacted cautiously to the analyst downgrade, and HP stock fell from $40 to $36. HP stock attempted to close above yearly highs yesterday, but the downgrade definitely harmed the positive momentum.

What Is the Future of HP Stock?

Analysts estimate HP to report earnings of $4.28 per share this year and $4.43 per share the next year, thus the stock is trading at only an 8 ahead P/E ratio, which appears to be low for the current market situation.

However, Dell is even cheaper with a forward P/E of 7, indicating that the market does not have a strong taste for computer hardware firms.

Concerns about declining demand may ultimately put greater pressure on HP stock in this climate. Companies and people that updated their hardware in 2020–2021 may be hesitant to renew it, and PC sales may revert to their former downward trend.

This is a significant risk for HP stock, which may require other favorable catalysts to return to its recent highs. At the same time, the stock's present valuation levels may provide some support in the approaching trading sessions.