<Things must be getting desperate at DJ.<
Undoubtably, these kinds of articles help sells papers for DJ. But, their commercial motive aside, they're not the first and they won't be the last to point out that there is an inevitable wall approaching for CSCO.
In fact, I think that Barron's missed a few key points:
1)Sustaining a very rapid growth rate through acquisitions becomes more and more problematical as the company grows. Its one thing to acquire company's that can help the revenue numbers when you're a $1B company. It's a lot more difficult to find significant contributors when you're a $20B company.
2)The sheer size of CSCO's market cap will inhibit its share appreciation. For example, today there are approximately 7B shares. Over the past five years there has been about 5% dilution per year(from acquisitions and options). If this holds steady there will be 8.5B shares outstanding in 2005 and nearly 11B shares outstanding in 2010. If investors are expecting a 35% annualized appreciation(I think most are expecting much more, but, let's be conservative), that means that CSCO's market cap in 2005 will be $1.8T and more than $10T in 2010!!!
To put these numbers in perspective, the total GDP of the U.S. is approximately $10T today and would be about $14T in 2010(at 4% growth/yr, a very optimistic scenario). Thus, CSCO's market cap would be equal to 15% of total GDP in 2005 and 70% of total GDP in 2010. It is absurd to imagine this to be possible.
To put this in another perspective, the total market capitalization of the NYSE is about $10T today, the NAZ is about $5T and the total market cap for the 5 largest stock exchanges in the world is about $21T. If this total world "basket" of stock markets appreciated at 10% annually for the next 10 years it would reach approximately $48T(again, incredibly optimistic), yet, even if that were to occur and CSCO appreciated the 35% noted above it would mean the CSCO would represent 22% of the total market cap of all companies in the world!!
To me the valuation of CSCO is the surest sign of a "bubble" that there is. No matter how great a company CSCO is, it simply can't support this sort of valuation indefinitely. It will come down to earth as investors start to realize that its more like a pyramid scheme than a real investment. |
