Breaking Down HP Inc. (HPQ) Financial Health: Key Insights for Investors

You're looking at HP Inc. (HPQ) and seeing a classic hardware story: a tug-of-war between legacy strength and future tech. Honestly, the market is sending mixed signals, with a consensus Hold rating and an average price target of $28.50. The good news is the Personal Systems segment is getting a boost from AI-driven PCs, which HP Inc. expects to command a 5-10% premium on Average Selling Prices (ASPs). But here's the quick math on the risk: management had to cut its full-year fiscal 2025 non-GAAP diluted net earnings per share (EPS) guidance to $3.00 to $3.30, down from the initial $3.45 to $3.75 range, mostly due to margin pressure and a persistent decline in the Print business. This pressure is real, and it also forced a downgrade on Free Cash Flow (FCF) expectations, now projected at $2.6 billion to $3.0 billion for FY2025. Still, the $1.9 billion structural cost savings from their Future Ready plan is defintely a tailwind. We need to look past the headline revenue of $13.2 billion in Q2 2025 and see if the AI PC tailwind can finally outweigh the long-term drag from the Printing segment.

Revenue Analysis

If you're looking at HP Inc. (HPQ), the direct takeaway is this: the company is successfully navigating a tough market by leaning heavily on its Personal Systems (PS) business, while the Printing segment remains a drag. Total net revenue for the third quarter of fiscal year 2025 (Q3 FY2025) came in at $13.9 billion, marking a solid 3.1% year-over-year increase.

The primary revenue streams for HP Inc. are clearly split into two major segments. The Personal Systems segment, which includes desktops, notebooks, and workstations, is the powerhouse, contributing the vast majority of sales. The Printing segment, covering hardware and high-margin supplies, is the other core driver, but its performance is mixed. For the trailing twelve months (TTM) ending July 31, 2025, the company's total revenue reached $54.71 billion, representing a 2.61% increase from the prior year.

Segment Contribution and Growth

The shift in revenue composition is a critical trend to watch. In Q3 FY2025, Personal Systems accounted for approximately 71.2% of the quarter's net revenue, while Printing made up the remaining 28.8%. Here's the quick math on how each segment performed:

• Personal Systems net revenue: $9.9 billion, up 6% year-over-year.
• Printing net revenue: $4.0 billion, down 4% year-over-year.

The momentum in Personal Systems is strong, driven by commercial demand and the early stages of the 'AI PC' cycle, which is a new category of personal computers designed to handle artificial intelligence (AI) tasks locally. Honestly, the PS segment is doing all the heavy lifting right now.

Shifts and Near-Term Risks

The growth within the Personal Systems segment is concentrated in the Commercial side, which was up 5% in Q3 FY2025, plus Consumer PS was up a surprising 8%. This tells you that businesses are starting to refresh their hardware, which is a key opportunity. On the flip side, the Printing business is facing structural headwinds, with Supplies net revenue-historically a high-margin anchor-down 4% year-over-year. Both Consumer Printing and Commercial Printing hardware revenue also declined, down 8% and 3%, respectively. What this estimate hides is the long-term challenge of managing the decline in the traditional ink and toner market as digital adoption continues. HP Inc. operates globally, providing innovative solutions across more than 170 countries, but the segment performance is the real story. For a deeper dive into the financial health, check out Breaking Down HP Inc. (HPQ) Financial Health: Key Insights for Investors.

Here is the segment breakdown for the most recent quarter:

The action for investors is clear: Personal Systems has to defintely maintain its growth trajectory to offset the continued, predictable erosion in Printing revenue.

Profitability Metrics

You need to know how much of HP Inc.'s (HPQ) revenue actually turns into profit, and frankly, the numbers tell a story of tight margins in a hyper-competitive hardware market. For the trailing twelve months (TTM) ending in Q3 fiscal year 2025, HP Inc.'s profitability margins sit well below the broader technology sector, but they show a solid, albeit compressed, operational base.

Here's the quick math: HP Inc. reported Q3 FY2025 net revenue of $13.9 billion and GAAP net earnings of $0.8 billion. That's a decent chunk of cash, but the core issue is the razor-thin percentage of each sales dollar that makes it to the bottom line, especially compared to software-focused peers. The company's focus on Mission Statement, Vision, & Core Values of HP Inc. (HPQ). and cost control is defintely critical here.

Gross, Operating, and Net Margins

HP Inc.'s margins reflect its position as a major hardware manufacturer, relying on scale and supply chain efficiency rather than high pricing power. The gross profit margin, which shows product-level profitability, is respectable for the industry, but the operating and net margins highlight the pressure from overhead costs and taxes.

• Gross Profit Margin (TTM): 20.89%. This is solid for a hardware business but is miles away from the 36% average for the broader Computer Hardware industry, suggesting aggressive pricing or higher component costs.
• Operating Profit Margin (TTM): 5.98%. This is the critical number for core business health, showing what's left after covering operational expenses (like R&D and SG&A).
• Net Profit Margin (TTM): 4.83%. This is the final take-home percentage after everything-interest, taxes, and non-operating items-is paid.

Margin Trends and Operational Efficiency

The trend in operating margin is a near-term concern. The GAAP operating margin for Q3 FY2025 was 5.1%, a noticeable drop of 1.9 percentage points from 7.0% in the same quarter last year. This erosion signals that cost management isn't fully offsetting pricing pressure and a shift in product mix.

Operational efficiency is a tale of two segments. HP Inc.'s Printing segment is the margin engine, with a Q3 FY2025 operating margin of 17.3%. The Personal Systems segment, which includes PCs and is seeing a push into higher-margin AI-enabled PCs (AIPCs), had a Q3 FY2025 operating margin of just 5.4%. The overall margin is dragged down by the high-volume, lower-margin PC business, even as the company targets more profitable products.

The fact that the Computer Hardware industry average net profit margin is actually -4.3% highlights just how brutal this sector is. HP Inc.'s 4.83% net margin, while low compared to a software giant like Apple (whose gross margin is around 47.18%), is a sign of resilience and effective cost control in a deeply cyclical and commoditized market. You're looking at a stable, cash-generating machine, not a high-growth, high-margin startup.

Next step: Look closely at the upcoming Q4 FY2025 earnings report for an update on the AI PC rollout and its effect on the Personal Systems margin-that's where the growth story is.

Debt vs. Equity Structure

You need a clear picture of how HP Inc. (HPQ) funds its operations, and the short answer is: they lean heavily on debt, which is magnified by a persistent shareholders' deficit. This capital structure is aggressive, so you need to look past the headline numbers to understand the true risk profile.

HP Inc.'s total debt is substantial, but the mix is manageable. As of the second fiscal quarter ending April 30, 2025, the company reported total debt (long-term debt plus notes payable) of approximately $10,737 million. The bulk of this is long-term, which gives the company breathing room, but the total liability load is a key factor in their negative equity position.

• Long-Term Debt: $9,291 million
• Short-Term Debt (Notes Payable): $1,446 million

Here's the quick math on their leverage: The Debt-to-Equity (D/E) ratio for HP Inc. as of July 31, 2025, stood at a striking -11.96. This negative ratio isn't a simple red flag; it means the company has a 'Stockholders' Deficit,' where total liabilities exceed total assets. The deficit was $-901 million as of July 31, 2025, a situation largely driven by years of aggressive share buybacks reducing the equity account.

To be fair, a negative D/E is common for companies with significant capital return programs, but it contrasts sharply with the industry. The average D/E ratio for the Technology Hardware, Storage & Peripherals sector is typically around 0.4616. HP Inc.'s management is essentially using debt to fund operations and return capital, a strategy that maximizes Return on Equity (ROE) but also amplifies risk.

HP Inc. is defintely active in managing its debt stack. In April 2025, the company priced a $1 billion senior unsecured notes offering. This issuance, split into $500 million in 5.400% notes due 2030 and $500 million in 6.100% notes due 2035, was a proactive move to refinance existing debt, specifically the 2.200% notes due in June 2025. This is a smart, albeit more expensive, move in a rising rate environment to push out maturity dates.

The company balances its debt financing with a commitment to maintaining investment-grade credit ratings, which is crucial for keeping borrowing costs low. As of late 2025, their long-term issuer ratings are solid, with a Stable Outlook from all three major agencies:

This investment-grade status is what allows them to maintain a high debt load while continuing to return capital to shareholders. The company's reliance on debt is a core part of its financial model, but it means any sustained downturn in free cash flow could quickly pressure these credit ratings. This strategic choice is a key point to consider when looking at their overall Mission Statement, Vision, & Core Values of HP Inc. (HPQ).

Next step: Check the free cash flow projections for fiscal year 2026 to see if they can comfortably service the higher interest payments on the new 2030 and 2035 notes.

Liquidity and Solvency

You need to know if HP Inc. (HPQ) can cover its short-term bills, and the simple answer is: not with just its most liquid assets. The company runs with a structural working capital deficit, which is common in the tech hardware sector, but it relies heavily on strong cash flow from operations to manage this. The key takeaway is that while the static balance sheet ratios look weak, the dynamic cash flow picture is much better, especially in the latter half of the fiscal year 2025.

For the third quarter of fiscal year 2025 (Q3 FY2025), HP Inc.'s liquidity ratios show a clear picture of how tight things are. The Current Ratio, which compares current assets to current liabilities, stood at approximately 0.74. This means for every dollar of short-term debt, the company only holds about 74 cents in assets that should convert to cash within a year. Even more telling is the Quick Ratio (or Acid-Test Ratio), which strips out inventory-a less liquid asset-and was only 0.44 as of July 2025.

Here's the quick math on the Q3 FY2025 liquidity position:

This low Quick Ratio is defintely a red flag on paper, but it's a design choice for HP Inc. The company manages its working capital aggressively, often by extending its days payable (paying suppliers slowly) and maintaining a negative working capital position. The trailing twelve months (TTM) change in working capital as of July 2025 was -$631 million, which shows the company continues to efficiently use its suppliers' financing to fund operations.

The real strength lies in the cash flow statement, which is a better gauge of operational health than static ratios for a company like this. Cash Flow from Operating Activities (CFOA) has been strong and improving throughout the year, especially in Q3 FY2025, where it hit $1.7 billion. This is a huge jump from Q2 FY2025's $38 million. This operating cash generation is what pays the bills and funds the company's capital allocation strategy.

Looking at the other cash flow sections, the trends are clear and investor-friendly:

• Operating Cash Flow: Strong momentum, culminating in $1.7 billion in Q3 FY2025, showing effective revenue conversion.
• Investing Cash Flow: Capital expenditures (CapEx) remain manageable. For example, Q3 FY2025 net investments in property, plant, equipment, and intangibles were $215 million.
• Financing Cash Flow: The company is clearly focused on returning capital to shareholders. In Q3 FY2025 alone, HP Inc. returned over $400 million through dividends ($272 million) and share repurchases ($150 million).

The company anticipates generating Free Cash Flow (FCF) in the range of $2.6 billion to $3.0 billion for the full fiscal year 2025, which gives them plenty of room to cover their debt service and continue their buyback program. This operational cash engine is the counter-balance to the tight liquidity ratios. If you want to understand the strategic drivers behind this, you should look at their long-term plan in the Mission Statement, Vision, & Core Values of HP Inc. (HPQ).

The near-term risk is a sudden, sharp decline in accounts receivable collection or a major inventory write-down, as the low ratios leave little cushion. But as long as the CFOA remains robust, the liquidity is a managed risk, not a crisis.

Valuation Analysis

You're looking at HP Inc. (HPQ) right now and asking the core question: Is this stock a bargain or a value trap? Based on the numbers as of November 2025, HP Inc. looks mechanically cheap, trading at multiples significantly below the broader market, but the price action tells a story of deep investor skepticism.

The core of the valuation argument is simple: HP Inc. is priced like a company with no growth. Its trailing Price-to-Earnings (P/E) ratio is sitting around 8.29, and the forward P/E, which is what analysts project for the next year's earnings, is even lower at roughly 7.4. Here's the quick math: the S&P 500 often trades well above a P/E of 20. When a stock is trading this low, it suggests the market expects earnings to drop, or it's defintely undervalued.

For a deeper look, you also need to check the Enterprise Value-to-EBITDA (EV/EBITDA) ratio, which accounts for debt and cash. HP Inc.'s TTM (Trailing Twelve Months) EV/EBITDA is approximately 6.1. This is another sign of a low-valuation stock, as the median for the broader industry is often much higher. Also, the Price-to-Book (P/B) ratio is negative, around -23.66. What this estimate hides is that HP Inc. has been so aggressive with share buybacks over the years that its shareholder equity is technically negative, which isn't a red flag for solvency, but a structural consequence of capital return.

The stock price trend over the last 12 months is the main reason for the low multiples. The stock has seen a significant decline, falling by about 37.11% over the last year, with a 52-week trading range between a low of $21.21 and a high of $39.80. The current price of around $23.96 is near the bottom of that range, reflecting the headwinds in the Personal Systems (PC) and Printing markets. It's been a tough year for hardware. Still, the company's dividend profile remains compelling for income-focused investors.

HP Inc. offers a strong dividend yield of approximately 5.12%, which is substantial in the tech sector. The annual dividend is about $1.16 per share. Crucially, the payout ratio is manageable at around 41.95%. This low payout ratio means the company is only using a small portion of its earnings to cover the dividend, making it relatively safe and leaving plenty of cash for reinvestment or further buybacks. This is a very sustainable dividend.

Wall Street's collective view is cautious. The analyst consensus as of November 2025 is a 'Hold', with a breakdown showing two 'Sell' ratings, thirteen 'Hold' ratings, and two 'Buy/Strong Buy' ratings across seventeen firms. The average 12-month price target is set at $28.50. This suggests a potential upside of over 19% from the current price, but the consensus on the rating itself is non-committal, reflecting the mixed signals from the low valuation and the challenging market outlook. For a deeper dive into the company's long-term strategy, you can review the Mission Statement, Vision, & Core Values of HP Inc. (HPQ).

• Current Analyst Consensus: Hold
• Average 12-Month Target Price: $28.50
• Implied Upside: Roughly 19% from current price.

The market sees HP Inc. as fundamentally undervalued on a multiple basis, but the 'Hold' rating shows analysts are waiting for a clear catalyst-likely the anticipated rebound in the PC market or a significant shift in the Printing business-before upgrading their outlook.

Risk Factors

You're looking at HP Inc. (HPQ) and trying to map the next 12 to 18 months, which is smart. The direct takeaway is this: HP is fighting a two-front war against external geopolitical headwinds and internal business-mix pressure. Their financial health, while stable, carries a higher-than-average leverage risk, which you defintely need to watch.

The most immediate and unpredictable risk is the shifting global trade landscape, which is hitting their bottom line right now. Specifically, U.S. trade-related regulations and tariffs on Chinese imports cost HP an estimated $0.12 hit to non-GAAP EPS and a 100 basis point reduction in operating margin during the second quarter of fiscal year 2025. That's real money lost to external policy.

The other major external risk is the intense, cyclical competition from peers like Dell and Lenovo, compounded by a general macroeconomic slowdown. Enterprise hardware spending has been slightly weak, and while the Personal Systems Commercial business is showing growth (up 9% year-over-year in Q2 FY25), their overall revenue growth is still modest.

Operational and Strategic Headwinds

The biggest operational challenge is the continued softness in the Printing segment, the traditional high-margin cash cow. In the third quarter of fiscal year 2025, Printing net revenue was down 4% year-over-year, with Supplies net revenue also declining by 4%. This segment's weakness puts enormous pressure on the Personal Systems division to perform.

HP's core strategy is a pivot to higher-margin products, especially the new AI-enabled PCs (AIPCs). This is a massive execution risk. While AIPCs command a 5-10% higher average selling price (ASP), the company has to rapidly scale this business, expecting AIPCs to account for 25% of shipments by year-end 2025. If enterprise adoption stalls, that turnaround story fizzles fast.

Financial Health and Leverage Concerns

While HP generates strong free cash flow, their balance sheet shows some structural risks. Their financial leverage is higher than the market average, with Net debt at approximately 1.86x EBITDA, compared to the market average of 1.14x. This higher debt load makes them more sensitive to interest rate hikes and economic downturns.

Also, a low Altman Z-Score of 1.65 places HP in the financial distress zone, which is a red flag for potential financial trouble over the next two years. Liquidity is also tight, as shown by the low Current ratio of 0.74 and Quick ratio of 0.44. This means they rely heavily on selling inventory to cover short-term liabilities.

Here's the quick math on their leverage and liquidity:

Mitigation Strategies and Clear Actions

HP is not sitting still; they are aggressively managing these risks through their multi-year Mission Statement, Vision, & Core Values of HP Inc. (HPQ).-aligned 'Future Ready' restructuring program. This program is their primary defense against margin pressure and geopolitical risk.

The core of their mitigation plan focuses on two clear actions: cost reduction and supply chain diversification.

• Achieve at least $2 billion in gross annual run rate structural cost savings by the end of fiscal year 2025.
• Shift 90% of North American PC production out of China, minimizing tariff exposure.
• Prioritize AI-enabled PCs and Commercial sales to drive higher margins.

This supply chain overhaul is a huge undertaking, expanding manufacturing in places like Vietnam, Thailand, India, and Mexico. It's expensive in the short term-restructuring charges are estimated at $1.2 billion by year-end-but it's essential for long-term stability and margin defense.

Your next step: Monitor the Q4 FY25 earnings report on November 25, 2025. Owner: Portfolio Manager: Assess the actual non-GAAP EPS against the guidance range of $3.00 to $3.30 for the full fiscal year.

Growth Opportunities

You're looking for a clear path forward for HP Inc. (HPQ), and the story for 2025 is simple: it's a focused pivot from a legacy hardware model to an AI-driven ecosystem. The company is actively shedding structural costs while simultaneously investing heavily in the next-generation Personal Systems market, which is where the real near-term growth will come from.

The biggest catalyst is the shift to the AI PC (Artificial Intelligence Personal Computer). This isn't just a new chip; it's a generational refresh cycle driven by the need for devices with integrated Neural Processing Units (NPUs) to handle on-device AI workloads. HP is positioning itself to capture a significant portion of this market, which is estimated to eventually comprise up to 43% of global PC shipments. That's a massive total addressable market reset.

HP's strategy is defintely two-pronged: innovation and geographic expansion. They unveiled an extensive lineup of AI-powered PCs and services at their Amplify 2025 Conference in March. Plus, they are using strategic partnerships to accelerate market penetration and manufacturing diversification.

• AI-Driven Manufacturing: A partnership with SAMI Advanced Electronics aims to manufacture millions of AI-driven computers in Saudi Arabia by 2030, specifically targeting enterprise customers in a new regional market.
• Acquiring AI Talent: The February 2025 acquisition of key AI capabilities from Humane was a smart, quick move to develop new AI-powered devices.
• Cost Efficiency: The 'Future Ready' plan is on track, with the structural cost savings target raised to $1.9 billion by the end of fiscal year 2025. This operational discipline helps buffer margin pressure while they invest in growth.

For a deeper dive into who is betting on this strategy, you should read Exploring HP Inc. (HPQ) Investor Profile: Who's Buying and Why?

When we look at the financials, the company's guidance for the fiscal year 2025 reflects a cautious but stable outlook, which is realistic given the macro environment. Here's the quick math on what management expects:

What this estimate hides is the potential upside from the AI PC refresh cycle. The Printing segment, while a high-margin annuity business, continues to face headwinds with Q3 2025 net revenue down 4% year-over-year to $4.0 billion. The Personal Systems segment, however, is the engine, with Q3 net revenue up 6% to $9.9 billion.

HP's long-standing competitive advantages are what position it to execute this pivot successfully. You can't just wish for a global footprint; HP operates in more than 170 countries. That global reach, paired with an extensive patent portfolio of over 22,000 patents, underpins its ability to innovate and distribute new products like the AI PC quickly. They have the brand trust and distribution network to make the AI strategy work, but execution is still everything.