$100 CSCO targets based on ... history?
Based on "history", one could claim $100 is merely a fraction of what this company will be worth in the next 5 years if it keeps up its current pace. In fact, five years from now it should be clear to anyone with grade-school math and passable marks in history that each share will be easily worth more than $1300!
As anyone can see, siliconinvestor.com CSCO has increased in share price by just over 2000% over the last 5 years, with uninterrupted flawless execution, rock solid management and the man himself at the helm. None of this is poised to change.
What else can we learn from history? Check out SEC filings, 10Q 3/13/96 vs 10Q 3/13/00. Extrapolating linearly, in their 3/13/05 we should expect to see: quarterly revenue to be 23B$ (+526% on 4.3B). Quarterly Earnings to be 3.5B$ (+420% on 825M). Shares to be 20B (+580% on 3413).
Forgetting about dilution, and using our per-share figure of $1,300 pre split, Market Cap this time in 2005 will be 9 T$ ($1300 x 7B). These are the straight extrapolations of recent history.
Me, I aced History, and I am a student of Science. So numbers like that give me pause for thought and I take a nonlinear view: I doubt that history will extrapolate so linearly.
Something isn't (or wasn't) right when share price goes up 20 x while revenue grows 5x and earnings go up 4x in the same period. PE now 185ish? I'd bet more on an under-valuation 5 years ago than on an under-valuation today. I'd also bet against a continuation of a similar injustice over the next 5 years, so more likely we see a 4x stock price in line with earnings than a 20x.
There is also considerable opportunity for some other ugly history lesson to creep in between now and then. Shifting demographics, election, a real market shock, some "not net" technology sweeping to the forefront and commanding all the investment premiums... these have also been known to occur over various periods in the past and have a non-zero risk which can not be discounted by a true historian.
So while I am highly dubious of $1300 by 2005 as "history" might otherwise indicate, back to the question at hand: $100 by year end?
Let's see what science offers. Last year this time, CSCO could go from $60 to $100 by "merely" increasing market cap by 60 B$. Today, a similar move is what... 240 B$... Even unannounced news worth all of NT leaves a few B$ on the table to be accounted for.
So very difficult to support hidden value underlying a move upwards to $100 by YE. So must base $100 not on intrinsic value of co & ongoing execution, but on irrational market factors.
Being of sound mind and body, perish the thought that I would be "certain" of an upward movement driven by market mania and unsupported by actual economic value.
Interpreting history as before, looks like 16% in 6 months is consistent with historical earnings growth @ constant PE... so we end up with a $75ish figure, $25 to go.
Any room for "undervaluation"? Well, co has corrected up from a dip but running pretty flat. PE at 187 is pretty steep. Recent pop up, so we're not sitting at a "bottom" worth $25. Maybe half that for luck.
Any room for premium?
Looking at a history based projection into 2005. See a behemoth co earning 12B/year, growing bottom line at 30% per year. Would it be "worth" 70x earnings then? Will boomer-behavior adjusted premiums apply then as now? Maybe yes, maybe no. Would I pay "extra" for that degree of certainty this year? No.
Will the market value CSCO at $200 B more than it currently values GE in this fiscal year? I doubt it.
Very impressive company. Great management, products, strategy, positioning and execution. No doubts about any of that. No brainer to buy at PE = 20. No brainer to sell at PE 2000. PE of 200... not a clear case here IMHO.
So where do I net out? Fearless prediction: Top in 2H00 closer to 83 than 100. Bottom in 2H00 closer to 47 than 30.
But I know very little and am content to be proven wrong by future historians. Wouldn't be the last time. |
