Should You Buy HP Stock For The Shares It Keeps Retiring?

HP stock has climbed 78% over the last six months, still trading slightly below its 52-week high. The company reduces its share count yearly, resulting in EPS growth outpacing profit growth. HP's share count fell 3.0% last year and an average of 2.5% over the past three years. Net income has grown 3.7% annually on average, while EPS grew 5.7% on average over the same period.

Dividends and buybacks accounted for 6.1% of HP's market value in the past year. Free cash flow covered this payout about 1.7 times. However, the costs of rising memory and storage costs are a concern, as HP expects these costs to increase. Management expects Personal Systems' fiscal Q4 2026 margin to be lower than Q3 2026 and improve in fiscal 2027.

The company aims to return most of its free cash flow over time, but only if gross leverage stays under two times and no better opportunities arise. HP is trading at 12.3 times trailing earnings, and a buyback becomes more efficient at this price. While HP's record is impressive, the main question is whether the free cash flow outlook will hold up amid rising memory costs.

HP's concentration is a risk, as seen in the comparison of its performance to the S&P 500 over the past three years.