HP Price Is UnwarrantedThe market action is telling me I was wrong about my previous prospects for Hewlett-Packard Company (NYSE/HPQ) and its CEO Meg Whitman.

When the maker of personal computers (PCs) was trading at $17.00 last October, I didn’t have that much optimism for Hewlett-Packard (HP). However, since that time, the stock is up about 40% and Wall Street appears to be getting back on the bandwagon and cheerleading once again.

The current rally and renewed optimism in Hewlett-Packard was driven by its beating Wall Street earnings estimates in spite of a 10% year-over-year (y/y) decline in fiscal second-quarter revenues. It was the company’s seventh straight quarter of declining sales.

I really wouldn’t be getting excited, based on both the sales contraction and my stock analysis.

Right across the board, Hewlett-Packard saw declines, especially in the PC segment (-20% y/y) and enterprise (-10% y/y). The ravaged PC segment saw total unit sales fall 21%, comprising a decline in desktop sales of 18% and a horrible 24% drop in notebook sales. My stock analysis suggests that the notebook market is probably negatively impacted by the rise in demand for more portable tablets. (Source: “HP Reports Second Quarter 2013 Results,” Yahoo! Finance, May 22, 2013, last accessed May 27, 2013.)

So, while Wall Street and investors appear to be onboard, I’m still sitting on the sidelines and will need more evidence than one quarter in which all segments witnessed sales losing ground to believe that Hewlett-Packard is turning around, based on my stock analysis.

The company beat on an adjusted-earnings basis, but like many companies undergoing restructuring, the improvement in earnings was largely due to aggressive cost cuts, based on my stock analysis.

At the end of the day, Whitman will need to address her company’s sales declines, as the cost-cutting will only be a bandage solution and not a resolution for the longer-term viability.

In other words, my stock analysis suggests that Hewlett-Packard may be faking you out.

I’m just not sure where the growth is going to originate from. One thing is for sure; it’s not going to be the PC segment, as this area will only get softer, based on my stock analysis.

The mobile sector continues to be a major growth area, but Hewlett-Packard has a lot of work ahead.

It will take years to turn Hewlett-Packard around, according to Whitman, as the company looks at streamlining its product line and producing a leaner, more efficient technology company.

My stock analysis indicates that the company’s lack of exposure in the surging mobile business is problematic. But this could change, as Hewlett-Packard now has a dedicated group responsible for growing the mobile business; albeit, we need to see some progress in this area.

In the meantime, I would go against the grain and not bet in favor of Hewlett-Packard for the time being.

This article Why Hewlett-Packard’s Surging Share Price Is Unwarranted was originally published at Investment Contrarians