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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 73.11

+0.3%

Oct 31 9:30 AM EST

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To: RetiredNow who wrote (22025)	2/5/1999 1:40:00 AM
From: John Stichnoth	of 77397

A few weeks ago I worked up a spreadsheet to see how crazy these multiples might be. Seeing the discussion here, I have uploaded the table to: bergen-nj.com The table has two parts. The first is a base for comparison. What happens if we invest in money market funds? The second part asks what happens if the "crazy" PE suddenly were to fall to current market levels, but we see continued superior earnings growth? How long would it take the investor to do as well as the money market rate? The answers are that at first (of course) you lose lots of value. Then, your investment starts to rise with the growth in the company's earnings. (I assumed 30% annually). It takes 7 or 8 years to finally match money market returns. Thereafter, the high growth of the company's earnings gives you great returns. As an investor, therefore, the question today is whether you believe that we will see the superior earnings growth for the period needed. (With Cisco, that seems a much more reasonable assumption than say Yahoo.) js

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