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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 71.08

+0.1%

Nov 7 9:30 AM EST

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To: Bretsky who wrote (28033)	8/31/1999 6:02:00 PM
From: Shafik Habal	Read Replies (2) of 77397

Thanks for the CSCO vs LU article by Jubak. Important points that JJ pointed out (and illustrated here particularly for those P/E watchers out there): moneycentral.msn.com <<Cisco is a lot more expensive than Lucent. Forget about earnings and price-to-earnings ratios here. These companies make so many acquisitions and take write-offs against earnings so regularly that cleaning up the numbers for a comparison is likely to drive an investor insane. Use the price-to-sales ratio -- the ratio of the stock price to the company's sales per share -- instead. Lucent was valued recently at a price-to-sales ratio of just about six. Cisco is three times as expensive, according to this measure, at a tad over 18 times sales. When trying to explain a valuation gulf like this one, I like to start by looking at growth rates at the two companies. Growth is, after all, what most investors look for today. Cisco has a decided edge in this category. In the recently concluded June quarter, revenue at Lucent grew by 22% from the same period a year earlier. Not too shabby. But Cisco's revenue grew by 48% in its most-recent quarter. Add the fact that Cisco gets a lot more profit out of a dollar of sales than Lucent does (65% at Cisco compared to a 48% gross profit margin at Lucent) and it's clear why the market values Cisco at a higher multiple to sales.>> Regards, SH

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