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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 73.99+3.1%Nov 12 3:59 PM EST
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To: RetiredNow who wrote (53236)5/21/2001 9:35:56 AM
From: Stock Farmer  Read Replies (2) of 77398
 
mindmeld: This is great analysis.

The entire thing hinges on what the future fair PE is for a company growing at let's say 30% per year. Right?

Should it be 50? 40? 30? 20?

I strongly suggest that your deterioration rate from bubble values to normal values is much too slow and that you should see a 5 year return to "normal" levels. Remember that CSCO had a PE in the mid 20's just prior to the bubble if I recall (I will have to go back and check, but some old-timers may have the data).

If you plug in something like 30 for a PE then by 2005 you have a stock price of $31, which is a return of about 8% per year from here.

If you plug in something like 20 for a PE, then by 2005 you have a stock price of 21, which is a return of about 0% per year from here.

The point that shouldn't be lost however is the rate of penetration of new markets and/or deterioration in old markets.

I'll ruminate more on this later.

John.
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