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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 74.59

+0.3%

Jan 23 9:30 AM EST

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To: Eric who wrote (15530)	8/5/1998 1:32:00 PM
From: The ChrisMeister	Read Replies (2) of 77400

"If there is one thing I have learned in over 30 years of investing is simply one word.........Growth!" I'll second that. And add that it's even more important as the economy slows some and interest rates stay low. Here's why: At the risk-free rate of return on the 30-year bond, 5 5/8 %, it'll take 12 2/3 years to double ones money. At Cisco's 29.7% annual rate of growth (using the recent quarter: .48/.37 = 1.297) it'll take 2 2/3 years to double earnings. Dividing 12 2/3 by 2 2/3 gives 4 3/4. It'll take someone nearly five times longer to double their money in bonds than in Cisco's stock (assuming stock tracks earnings). Thus, by this back-of-the-envelope calculation, CSCO is worth 4 3/4 times a company which isn't growing. If that's approximately the case for the average S&P 500 stock, then CSCO is worth something like 4.75 times the market P/E. If that's 22, then CSCO is worth a 105 P/E. That's why Cisco isn't necessarily terribly over-valued at its current price. Growth is worth a premium. ChrisMeister

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