Over the past six months, Hewlett Packard Enterprise’s shares (currently trading at $16.55) have posted a disappointing 17.5% loss while the S&P 500 was down 2.9%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Hewlett Packard Enterprise, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Hewlett Packard Enterprise Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why we avoid HPE and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Hewlett Packard Enterprise’s 1.8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks. 
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Hewlett Packard Enterprise’s weak 1.4% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Hewlett Packard Enterprise historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.9%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.
Final Judgment
Hewlett Packard Enterprise isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 7.5× forward price-to-earnings (or $16.55 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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