HPE's 42x Multiple Tells Only Half the Story

According to Trefis analysis, Hewlett Packard Enterprise (HPE) stock appears expensive at 42 times current earnings. However, that multiple tells only half the story.

Rating Change

Trefis did not explicitly change its rating, but the analysis focuses on evaluating the stock based on future earnings. The forward P/E based on earnings two years out is approximately 20x, significantly lower than the current multiple.

Analyst's Rationale

Trefis argues that investors are paying a high price today for earnings expected in two years. If HPE delivers strong earnings growth as projected, the current valuation becomes reasonable. The company benefits from trends like cloud computing and AI.

Context

Compared to Cisco Systems (CSCO) and IBM, which trade at lower multiples (around 15x and 18x respectively), HPE commands a growth premium. However, if HPE fails to meet growth expectations, the stock could be vulnerable to a correction.

What We Conclude

Investors need to weigh the current high valuation against future growth potential. The article does not recommend buying or selling, but suggests looking at forward earnings rather than trailing.