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Hewlett Packard Enterprise Company HPE has delivered stellar performance over the past year, with its stock surging 34.1%, outperforming the Zacks Computer - Integrated Systems, Zacks Computer and Technology sector and the S&P500 index’s return of 8.5%, 33.4% and 24.9%, respectively. The stock has also outperformed industry peers, including Micron MU, Seagate Technology STX and Advanced Micro Devices AMD.
While this rally showcases HPE’s resilience, the question remains: Is there more room for growth, or is it time to lock in profits? For now, holding the stock appears to be the most prudent strategy.
GreenLake and AI Drive HPE’s Success
HPE’s rally over the past year has been driven by strong performance in its key segments, particularly GreenLake and artificial intelligence (AI) systems. There is significant momentum in the adoption of HPE GreenLake as organizations are capitalizing on the flexibility and scalability of this IT transformation solution.
Hewlett Packard Enterprise Price Performance Chart
Image Source: Zacks Investment Research
GreenLake’s customer base expanded by approximately 34.5% year over year, reaching 39,000 in the fourth quarter of fiscal 2024. This growth in customer base has driven the annualized revenue run rate, which has increased 48% year over year, exceeding $1.9 billion at the end of the fiscal fourth quarter.
Hewlett Packard Enterprise continues to see robust demand for its AI system offerings. In the fourth quarter of fiscal 2024, HPE reported that it had $6.7 billion in cumulative orders for AI products and services since the first quarter of fiscal 2023. HPE’s new AI orders in the fiscal fourth quarter of 2024 have brought its backlogs to a value of $3.5 billion.
HPE’s Valuation Signals a Discounted Opportunity
HPE’s valuation adds another layer of appeal. The stock trades at a forward 12-month price-to-earnings (P/E) ratio of 10.31, significantly lower than the Zacks Computer – Integrated Systems industry average of 19.39. Similarly, the forward 12-month price-to-sales (P/S) ratio of 0.89 is substantially lower than the industry average of 3.34. This favorable valuation makes HPE an attractive option for long-term investors.
Hewlett Packard Enterprise P/E (F12M) Chart
Image Source: Zacks Investment Research
Short-Term Challenges Cloud the Outlook for HPE
While Hewlett Packard Enterprise is gaining from the growing adoption of AI, the company is also facing certain headwinds. The company’s near-term prospects might be hurt by softening IT spending. Higher interest rates and protracted inflationary pressures are hurting consumer spending. On the other hand, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues.