Delivering Alpha

Jim Chanos: Hewlett-Packard Is 'Ultimate Value Trap'

Jim Chanos is short Hewlett-Packard.

Describing the company as “the ultimate value trap,” Chanos said he is short Hewlett-Packard during the “best idea” panel at the CNBC and Institutional InvestorDelivering Alpha conference.

Chanos, president and founder of Kynikos Associates, said Hewlett-Packard has been hiding the true costs of its R&D through acquisitions. Once the costs of these acquisitions are taken into account, revenues and cash flow at the company are “basically flat,” Chanos said.

This means that investors looking simply at metrics such as price to earnings may mistakenly view HP as “cheap,” or a “value” investment opportunity, according to Chanos.

What’s more, the personal computing business is in decline, Chanos said. The growth of tablets and smart phones will continue to eat away at PC sales, Chanos predicted.

“People will still buy PCs. It just won’t be a very profitable business,” Chanos said.

Chanos said his analysis could be applied to several other technology companies. He mentioned that he had previously discussed shorting Dell, but the decline in the stock has made him “less excited about that idea.”

Video: So Should You Short HPQ Like Chanos?