Should You Hold or Fold HPE Stock After a 27.7% Rise in 6 Months?

Hewlett Packard Enterprise HPE shares have gained 27.7% in the past six months, underperforming the Zacks Computer - Integrated Systems industry’s return, raising the question: Should investors accumulate HPE stock or book profits and exit the investment?

HPE 6 Month Performance Chart

From a valuation standpoint, HPE trades at a forward price-to-sales ratio of 0.75, below the industry’s 4.91. Given these valuation factors, let us now look at the performance metrics of this stock.

HPE Forward 12 Month (P/S) Valuation Chart

HPE Grapples With Margin Compression

Hewlett Packard Enterprise is battling numerous headwinds in spite of strong top-line growth. HPE’s gross margins are facing decline due to an unfavorable product mix across servers, networking, and hybrid cloud offerings. Additionally, HPE is grappling high-cost AI rack deployments and integration expenses from Juniper Networks.

The Juniper Networks acquisition also raised HPE’s leverage to 3.1x in the third quarter of fiscal 2025. The acquisition of Juniper Networks, along with product-related cost and variable compliance expense, is likely to shrink HPE’s Networking segment’s margins in the upcoming quarter, as discussed in their earnings call.

The United States and China’s tit-for-tat trade war is a major threat to the company. Further, longer sales cycles, which are stretching the time to close certain deals, are a major overhang affecting both top and bottom-line growth. The Zacks Consensus Estimate for HPE’s fourth-quarter fiscal 2025 earnings is pegged at 59 cents per share, indicating growth of 1.72% year over year.

HPE Faces Competition in Cloud and Server Space

HPE’s subscription revenues and allied ARR growth are strongly tied to hybrid and private cloud solutions. The global cloud space is led by other massive players like Amazon AMZN and Microsoft MSFT, and server space has strong competitors like Dell Technologies DELL and Super Micro Computer.

Amazon, through its Amazon Web Services, dominates services, including compute, storage, AI/ML, and hybrid offerings like Outposts and EKS Anywhere. Microsoft, on the other hand, has a strong presence among enterprises because of its Azure Stack. Microsoft’s collaboration with AI has equipped it with AI Factory-like deployments.

However, HPE has an edge in this space as it differentiates itself with the integration of private cloud, AI factory and networking.

In the server space, Dell Technologies is capitalizing on the strong demand for its servers across industries, driven primarily by ongoing digital transformation and the adoption of generative AI applications. DELL has experienced sequential growth in server adoption.

Conclusion: Sell HPE for Now

HPE is grappling with multiple macroeconomic, competitive and operational headwinds limiting its near-term prospects. For now, we suggest that investors should stay away from this Zacks Rank #5 (Strong Sell) stock at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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