HPE Stock Climbs 34% in a Year: Hold Tight or Time to Let Go?

Core Viewpoint - Hewlett Packard Enterprise Company (HPE) has shown exceptional performance over the past year, with a stock increase of 34.1%, significantly outperforming its peers and major indices [1][2]. Group 1: Performance and Growth Drivers - HPE's stock performance has outpaced the Zacks Computer - Integrated Systems, Zacks Computer and Technology sector, and the S&P 500 index, which returned 8.5%, 33.4%, and 24.9% respectively [1]. - The growth has been primarily driven by strong performance in key segments, particularly GreenLake and artificial intelligence (AI) systems, with a notable increase in customer adoption [3]. - GreenLake's customer base expanded by approximately 34.5% year over year, reaching 39,000 in Q4 of fiscal 2024, contributing to an annualized revenue run rate that increased 48% year over year, exceeding $1.9 billion [4]. Group 2: AI Systems and Orders - HPE reported cumulative orders for AI products and services amounting to $6.7 billion since Q1 of fiscal 2023, with new AI orders in Q4 of fiscal 2024 increasing backlogs to $3.5 billion [5]. Group 3: Valuation Metrics - HPE's stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 10.31, significantly lower than the industry average of 19.39, and a forward 12-month price-to-sales (P/S) ratio of 0.89 compared to the industry average of 3.34, indicating a potentially attractive investment opportunity [6]. Group 4: Challenges and Market Outlook - Despite the positive growth in AI and GreenLake, HPE faces near-term challenges due to softening IT spending, higher interest rates, and inflationary pressures affecting consumer spending [9]. - The Intelligent Edge division experienced a 20% year-over-year revenue drop in Q4 of fiscal 2024, attributed to inventory accumulation among customers and softer demand for switching and campus solutions [10]. - HPE's gross margin contracted by 390 basis points year over year to 30.9%, influenced by a low mix of high-margin Intelligent Edge revenues [11]. - The financial services division reported a modest 2% year-over-year revenue growth of $893 million in Q4 of fiscal 2024, reflecting the overall softness in IT spending [12]. Group 5: Financial Estimates - The Zacks Consensus Estimate for fiscal 2025 earnings has been revised downward to $2.10, and for fiscal 2026 to $2.28, indicating a lack of strong financial recovery in the near term [13]. Group 6: Conclusion - HPE's growth in GreenLake and AI indicates long-term potential, but current challenges necessitate a cautious approach, suggesting that holding the stock is advisable for now [15].