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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 75.72

-1.7%

12:01 PM EST

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To: Stock Farmer who wrote (57742)	2/20/2002 3:07:42 PM
From: RetiredNow	Read Replies (1) of 77400

Hey John, it is interesting that something could be considered fairly valued in the market despite it being twice DCF. One thing I'd caution you is trying to pin down any company's worth based solely on DCF. As you most probably know there are many methodologies employed when finance experts try to value a company (equity value, book value, DCF, market comparables, fair value of assets minus debt retirement value, etc). So to say categorically that 2x DCF is simply a testament to a company being overvalued is naive at best, and ludicrous at worst. Remember our discussions about GIGO and about how assumptions can change an entire valuation model? Sensitivity analysis is one thing that can shed light on why DCF is only as good as it's assumptions. Anyway, thought experiment for you. Let's pick a company that just about everyone says is well managed: Intel. I think we should do a DCF valuation analysis on Intel and see what we come up with. It wouldn't surprise me to see that it is valued at more than DCF would dictate. Again, does that mean it's overvalued? I wouldn't be too sure.

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