On the four Ms, Hewlett Packard Enterprise earns 31 for management and 29 for moat. The management score rests on a return on invested capital of -0.6% and a gross margin of 28.8% — figures that describe capital earning less than it costs to employ. Debt sits at 0.98x equity.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 4.9% a year, the rate measured from the filings. The exit multiple assumed is 9.9x. That produces an intrinsic value of $7.60, a 10-CAP price of $33.94 and a payback time price of $33.94, with the value zone set at the highest of the three, $33.94. Today's price of $64.61 is 90% above it.
The price is above the value zone and the business scores 29 for moat and 31 for management. Neither test argues for paying up here.
| Price | $64.61 |
| Market cap | $85.6B |
| P/E ratio | 33.7x |
| Return on invested capital | -0.6% |
| Gross margin | 28.8% |
| Debt to equity | 0.98x |
| Free cash flow yield | 1.9% |
| Growth rate used | 4.9% |
| Growth rate measured | 5.0% |
| Exit multiple assumed | 9.9x |
| Company | Moat | Buy price |
| Everpure Inc-A (P) | 83 | $10.95 |
| NetApp Inc. (NTAP) | 79 | $86.21 |
| HP Inc. (HPQ) | 26 | $44.41 |
| Seagate Technology (STX) | 87 | $149.80 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Hewlett Packard Enterprise rather than accepting ours.