Cisco Systems, Inc. (CSCO) Message Board

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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 74.30

+1.6%

9:30 AM EST

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To: jach who wrote (22437)	2/11/1999 3:20:00 PM
From: michael modeme	Read Replies (1) of 77397

First of all, CSCO's P/E based on the last 4 quarters is around 80. It used to be more than 60, then droped down to 60. With the ramping-up of the internet, CSCO was given a higher premium. As the market cap of CSCO increased, so did it's average P/E (typical of stocks). There are many DOW industrial stocks with P/E's many times higher than their growth rates. Remember that if P/E ratios stay the same, then the stock grows as fast as the earnings do. A year from now, if CSCO doesn't change it's P/E it'll be at around $145 per share, whereas if other stocks don't change their P/E ratios they will grow as fast as their earnings -- perhaps 5% for most DOW indust. stocks (for example), so a $100 stock will be worth $105. Which one would you rather own? The point: P/E ratios don't increase linearly with growth rates, they increase faster because of the effect I've just detailed. cheers

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