HP, Inc. Delivers Strong Earnings, Revenue and FCF - Short-Put Plays Still Have High Yields

HP, Inc. (HPQ) delivered strong fiscal Q3 earnings, revenue, free cash flow (FCF), and higher FCF margins. That augurs well for HPQ stock, although unit sales were down, management warned that memory costs could rise, and growth may depend on price hikes. Nevertheless, put yields are still high, giving short-sellers a good play.

HPQ fell just 2.92% today to $29.63, despite heavy put option trading in the past several weeks. 

I discussed this yesterday in a Barchart article, “HP, Inc. Results Today - Huge, Unusual Options Activity in Long-Dated HPQ Puts, ” and also in an Aug. 11 Barchart piece, “HP Inc. Has Unusual Put Option Activity - A 7.4% Short-Put Yield - But Is It a Trap?”

As a result, short-sellers of out-of-the-money (OTM) HPQ puts can now earn high cash-secured short-sale yields. This article will discuss this play.

The Good and the Bad

Not only were fiscal Q3 revenue and earnings significantly higher than management's guidance and analysts' forecasts, but HP, Inc. also raised its free cash flow (FCF) guidance for FY 2026 (i.e., ending Oct. 31).

It said that net revenue was up 12.5% Y/Y and earnings per share (EPS) were up 10.7% to 71 cents, although this included one-time tariff refund income of 11 cents.

Moreover, free cash flow (FCF) was up 7% to $1.548 billion. Stock Analysis reported that the FCF margin was down slightly from last year (9.87% vs. 10.38%, although up from 5.25% in fiscal Q2).

However, the bad news, or more concerning news, is that HP's personal systems (i.e., PCs for both consumers and companies) had a 16% drop in unit volume Y/Y. This is seen on page 2 of the press release

Moreover, Personal Systems account for 75% of total sales, as shown on page 13 of the release. (Personal units dropped 19%, accounting for 20% of sales).

The point is that revenue gains were due to higher unit prices, not higher volume. Companies can't count on that continuing without dampening demand further.

Moreover, management said that they expect that memory costs, as a percent of the total unit "bill of materials, will increase further. Whether the company can keep passing this on to consumers through higher prices is yet to be seen. It could lead to further drops in unit volume.

Will that lead to revenue declines? So far, analysts don't think so. For example, the average analyst revenue forecast for Oct. 31, 2027 is $59.34 billion vs. $59.74 billion this year ending Oct. 31, 2026. 

Where This Leaves HPQ's Fair Value

That is essentially flat. But the market always wants to see growth. It could be why the stock has fallen today, despite higher FCF margins and higher FCF.

Nevertheless, much of this bad news is already “baked” into HPQ stock. For example, analysts now have an average price target of $27.32, according to Yahoo! Finance. That's up significantly from 2 weeks ago, when I showed that the average PT was $22.98. In fact, yesterday, Yahoo! Finance had an average survey PT of $23.41, as seen in my Aug. 26 Barchart article.

As a result, put options are probably too high, especially for strike prices at $27.00 or lower.

Shorting OTM Cash-Secured Puts

For example, the Oct. 2, 2026, expiry put option chain, a little over one month from now, shows that the $27.00 strike price put has a midpoint premium of 66 cents.

That represents a 2.44% one-month yield for cash-secured put short sellers (i.e., $66/$2,700 in collateral secured).

Moreover, even though the strike price is 8.88% below Thursday's closing price of $29.63, it allows an investor to have a potential breakeven even lower:

  $27.00 - $0.66 = $26.34 breakeven point (BP)

That's 11% lower than the $29.63 close.

Moreover, for just a slightly higher strike price, the investor can earn a higher yield. The $27.50 put has a $1.02 midpoint premium.

That means a short-seller can make $102 after posting $2,750 as cash-secured collateral to buy 100 shares. This works out to a one-month yield of 3.709%.

That is very attractive to value investors over the long run. For example, the expected return (ER), assuming it can be repeated each month, for six months is 22.25%.

The bottom line is that investors can earn significant yields shorting HPQ. 

However, some investors may want to wait to see if HPQ falls closer to $27.00, where analysts' price targets are now. That could reduce the potential yield opportunity, but would make the play safer from a long-term standpoint.