HP Inc. Stock Was Up Nearly 30% in 2016, Is It Time To Sell?

By Tim Brugger Markets Fool.com

It's been a stellar year for shareholders of HP Inc. (NYSE: HPQ). Despite the "dying" PC market, HP stock delivered a nearly 30% return in 2016, which may have some owners considering taking profits and reducing their stakes. On the other side, some investors who've seen HP's strong performance may figure it's too late to enjoy the upward run.

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There are certainly areas of HP's business that could use a boost: Its money-losing printing unit comes to mind. That said, HP's stock price gains in 2016 were not only warranted, its future is looking rosier with each passing quarter. Add to its recent wins a future chock-full of opportunity in fast-growing markets, and HP's sound 2016 could prove just a precursor of what's to come in the new year.

Image source: HP Inc.

PCs are alive and well

Sales in every segment within HP's Personal Systems unit increased both sequentially and year-over-year last quarter, led by a 6% jump in notebook sales compared to fiscal Q4 2015 and 8% improvement over its third quarter. Workstations and the other PC segment also climbed last quarter, including desktop revenue.

The strength of HP's PC division is significant in that it provides the majority of total revenue -- 64% of its $12.5 billion last quarter -- and it demonstrates that CEO Dion Weisler's strategy of targeting niche markets is working. HP doesn't break out revenue from specific products, but its new-ish OMEN PC line almost certainly played a role in its stellar performance.

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The OMEN line directly targets the world's gamers. The OMEN offers high-resolution graphics and the option of NVIDIA's (NASDAQ: NVDA) top-of-the-line virtual reality (VR) capable GeForce GTX 1080 graphics processing unit (GPU). NVIDIA's 1080 GPU is part of the reason its own stock has skyrocketed this year, recognizing as HP does that the opportunity VR represents is nearly unlimited.

Another example of HP's stellar PC performance was last calendar quarter's sales increase, even as Lenovo (NASDAQOTH: LNVGY) was losing ground. At 20.4%, HP's PC market share is just a whisker below Lenovo's industry-leading 20.9%. A year ago, the market share gap between HP and Lenovo was 1.4 percentage points.

Printing makes a comeback

Ask HP naysayers about the weaknesses of the company, and they'll likely point to printing as its Achilles' heel. That was true in the past, and is still the case. However, there are several indicators suggesting its printing woes are nearing an end. One notable change was news of HP's $1.05 billion deal for Samsung's (NASDAQOTH: SSNLF) print and copier division.

In addition to Samsung's industry-leading multifunction printer (MFP) technologies, HP will also gain over 6,500 printing patents, along with its supplies business. Supply sales represent HP's biggest segment within its printing unit, accounting for $2.84 billion of the division's $4.56 billion in total revenue last quarter. Supplies have been HP's weakest printing segment, though even that is beginning to change.

A quarter ago, HP's printing revenue dropped 14% compared to the prior year, led by an 18% decline in supply sales. Just one quarter later, HP's fiscal 2016 fourth, printing revenue was down just 8% and supplies eased 12%. And both printing in general and supplies in particular should also get a boost in the coming year now that HP's Jet Fusion 3D printers are ready for the masses.

HP claims its 3D printers are both faster -- up to 10 times -- and less expensive than those of its competitors. Though 3D printing didn't skyrocket this year as some had predicted, HP's new line up could be the spark the market needs to reach lofty estimates of over $30 billion in revenue by 2022.

Time to sell?

Considering HP's surprisingly strong PC unit, where momentum shows no signs of slowing, and the headway already being made in printing -- even before the Samsung deal closes and 3D printing hits it stride -- there's no reason to sell this stock. Toss in one of the industry's best dividend yields of 3.5% along with a current valuation of just over eight times future earnings, and growth and income investors should give HP a long, hard look despite 2016's gains.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.