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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 76.00-2.0%3:59 PM EST
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To: Stock Farmer who wrote (52174)4/26/2001 9:18:19 PM
From: John Malloy  Read Replies (1) of 77400
 
John,

By DCF models I trust you do not mean models where rate of return, growth rate, and price/book ratio must stay constant forever at today's levels.

I use DCF models where return, growth rate, and price/book ratio can all change with time. A reasonable forecast for Cisco, for example, would have slow growth for perhaps six months, followed by gradual recovery, although not to the growth rates of last year. The price/book forecast would be similar, except that it would recover sooner as investors anticipate improvement in Cisco's business.

You can develop the forecast of stock prices that is consistent with those growth rate and price/book ratio forecasts. You can then discount the proceeds from any future sale of the stock to see what the stock is worth today.

John Malloy
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