HP Inc. (HPQ)

Total return at 5 years: 11.4%/year = 7.4% appreciation + 4.0% dividend. The target price ($43) is ex-dividend; the $7 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $80 · Multiples $40) exceeds the market price ($30).

Today — fairly valued: at $30 trades ~26.0% below its value discounted to today (~$40); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($43) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$26.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($30) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-13.3%/year) than we project (5.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.4 bn of owner earnings in year 5 (vs ~$3.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT (EV/EBIT, suma de las partes). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

HP Inc. is valued on a sum-of-the-parts basis: Personal Systems (thin-margin transactional hardware, intense price competition) and Printing (installed-base consumables, higher margin but in structural erosion from the migration to refillable-tank printers). Each piece is valued at EV/EBIT with its own multiple within the equipment-manufacturing archetype band (8 to 12 times): Personal Systems at 8.5x and Printing at 10.5x; the consolidated year-5 multiple (9.5x) is derived by weighting each piece by its share of terminal operating income, not authored directly. The model is at the enterprise level, not the equity level: starting cash and debt reflect the real balance sheet (cash of $4,169 million, total debt of $9,160 million) because the segments report operating income before interest, and HP has negative book equity. Year 0 is the TTM closed on July 31, 2026, built by levels from the third-quarter fiscal 2026 release (8-K of August 26, 2026): revenue of $59,162 million and operating income of $3,222 million. That operating income is normalized for the tariff refunds the company quantifies and separates: $0.11 per share in the quarter, about $123 million pre-tax, which are subtracted, leaving normalized operating income at $3,099 million, a 5.24% margin. Year 1 anchors on the same release's raised guidance, taken net of those refunds: GAAP diluted EPS of $2.52 to $2.62 and non-GAAP of $3.19 to $3.29 for fiscal 2026, both including $0.19 of refunds, and free cash flow raised to $3,000-3,200 million. The important read from the quarter is about the quality of growth, not the level: Personal Systems grew revenue 18% with units falling 16% — consumer down 19%, commercial down 14% — meaning all of the growth is price, and price is rising because memory and storage costs are rising and the company is passing them through. That is not volume and is not durable: when component costs normalize, revenue reverts with them. That is why the revenue path grows 4.5% in year 1 and decelerates to 2.2% by year 5, below what extrapolating the quarter's reported 12.5% would suggest, and operating margin falls in year 1 before recovering to 6.0% by year 5 as the fiscal 2026 restructuring plan delivers savings. The model's net margin series shifts to a GAAP basis — the normalized year-0 figure is 3.97% — instead of the non-GAAP basis used in the prior pass: the company's non-GAAP earnings exclude restructuring, intangible amortization, and pension credits, and mixing it with GAAP operating income left two conventions inside the same table. The tax rate is 12.3%, the trailing year's effective rate ($345 million on $2,796 million of pre-tax income), not the 5.2% of fiscal 2025, which was an artifact of one-time tax benefits. The buyback is modeled with a 2.8% annual share-count path, exactly the net reduction revealed between the third quarter of fiscal 2025 (954 million diluted shares) and that of fiscal 2026 (927 million), with no additional cash accumulation: HP returns nearly all of its flow via dividends and buybacks and redeploys the retained surplus into debt repayment and working capital, so accumulating it in addition to retiring shares with it would double-count it.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $43 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $30, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $43 in 5 years plus $7 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $40. Against the current market price ($30), the margin of safety is 26.0% (trades below the maximum → there is margin) and the total return at that price would be 11.4% annually.

• Entry multiple. Today's entry multiple sits within the archetype band, without paying a premium for transitory growth.
• Sum of the parts. Each segment is valued at its own EV/EBIT multiple, avoiding forcing a single multiple onto a business of two distinct economics.
• Margin of safety. It trades at a real discount to value, though short of the required margin of safety.
• Sensitivity to the terminal multiple. The 5-year value is sensitive to the pace of Printing's erosion, which determines the weighting of the two pieces in the terminal year.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (103%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. Strong and explicitly guided by the company (US$2.8-3.0 billion for fiscal year 2026).
• Return on capital. High in appearance, sustained by negative working capital more than by a broad moat; read with that caveat.
• Reinvestment runway. Limited: capex below depreciation, a business predominantly in maintenance mode.
• Earnings consistency. Recurring restructuring charges distort the period-over-period GAAP comparison.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Personal Systems shows the effect of the AI-driven device refresh on revenue alongside margin compression from component costs, but the driver to watch is units: in the third quarter of fiscal 2026 the segment billed 18% more with 16% fewer units, meaning the growth is entirely price and comes from passing through the rise in memory and storage costs, not from incremental demand. Printing shows the structural erosion the company itself discloses — revenue down 2%, consumables down 3%, and hardware units down 7% — with a margin that stays well above Personal Systems' but is also retreating, consistent with the migration to refillable tanks and pressure from non-original supplies.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Personal Systems. Accelerating on the AI PC refresh cycle, a catalyst with limited useful life.
• Printing. In structural decline, with the migration toward refillable tanks as the dominant pressure.
• Consolidated mix. Consolidated growth is an average of two opposing forces, not a single sustainable engine.
• Company guidance. Non-GAAP earnings per share guided for fiscal year 2026 is the anchor for the first year of the projection.

• Revenue recurrence. Partial: Supplies contributes real recurrence, but Personal Systems is entirely transactional.
• Product differentiation. Limited in Personal Systems, more real in Printing's consumables ecosystem.
• Pricing power. Weak: HP acknowledges it cannot fully pass through rising component costs to price.
• Recession behavior. Corporate and consumer hardware is cycle-sensitive; Supplies is more resilient given its recurring nature.
• Moat direction. Eroding in Printing due to the structural migration toward refillable tanks, disclosed by the company itself.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.2x
• !Interest coverage (EBIT / interest)7.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 103% of ROIC
• ✓Value creation (ROIC − 10% bar)+46pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Equity. Negative (-US$144M), the product of years of aggressive share buybacks financed with debt and operating cash.
• Leverage. Total debt of US$9,666M against cash of US$3,703M; comfortable coverage from guided free cash flow.
• Liquidity. Cash of US$3,703M and demonstrated access to the debt market to refinance maturities.
• Working capital. Negative (financed by suppliers), which reduces net invested capital and sustains the return on capital.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Alignment. Insider ownership low in percentage terms; shareholder base majority passive institutional.
• Capital allocation. Prioritizes dividends and buybacks over reinvestment, consistent with a business whose capex is predominantly maintenance.
• Leadership continuity. The second-quarter fiscal 2026 press release identifies an interim CEO, a transition to monitor.
• Candor in communication. The filing discloses Printing's structural erosion and component cost pressure with unusual precision, rather than downplaying it.

• Perception of a mature, no-growth business: the market extrapolates Printing's structural decline without weighing Personal Systems' current momentum, and the company just raised its earnings and free cash flow guidance.
• Executive leadership transition, with an interim chief executive at the helm, which tends to generate uncertainty and a temporary discount until the succession is resolved.
• Recurring restructuring charges that depress GAAP earnings and obscure the normalized earnings the company itself guides to.

There is no obvious missing-buyers source of discount: analyst coverage and liquidity are ample. The opportunity, if it exists, lies in the gap between GAAP earnings depressed by recurring charges and what the company guides to. The counterweight this valuation does price in is the quality of the growth: Personal Systems bills 18% more while selling 16% fewer units, so a large part of the incremental revenue is a pass-through of memory costs and reverses once those costs normalize.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -3%/year (-14% total): the margin of safety protects the downside. The bull (+26%/year, +222% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Printing erosion. The migration toward refillable tanks is the most direct structural risk to the company's higher-margin business.
• Supplier concentration. Dependence on Canon, Intel, AMD and NVIDIA for critical components, with concentrated outsourced manufacturing.
• Component costs. Rising memory and storage costs pressure the Personal Systems margin with no guarantee of pass-through to price.
• Intellectual property litigation. Material litigation charges in recent fiscal years, including standard-essential patent claims.
• Leadership transition. The interim CEO identified in the second-quarter fiscal 2026 press release introduces succession uncertainty.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 1.9 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 9% (EBIT/EV) + ROIC 56% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -13% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -9%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, switching costs → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -13%, within what we project (6%) — the story squares with the numbers.