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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Richard Nehrboss who wrote (28019)	8/30/1999 9:23:00 AM
From: Zoltan!	Respond to of 77397

Philip Fisher, one of the greatest investors of all time, wrote in 1958, "if the job has been correctly done when a common stock is purchased the time to sell it is almost never."

To: Richard Nehrboss who wrote (28019)	8/30/1999 1:14:00 PM
From: Howard Bennett	Respond to of 77397

Well said and reasoned Richard.

To: Richard Nehrboss who wrote (28019)	8/30/1999 2:25:00 PM
From: John Malloy	Read Replies (1) \| Respond to of 77397

There is a straightforward way to determine whether P/E ratios are too high. A stock is worth the discounted value of all the cash that stock will put into your pocket while you hold it. For growth stocks like Cisco there are no dividends, the only cash that rolls in is the net proceeds when you sell (stock price less capital gains taxes and broker's commissions). Discount the net proceeds at the minimum rate of return you will accept. That is what the stock is worth to you. Whatever P/E ratio that stock value corresponds to is a fair P/E ratio. Forecast the growth rate of equity/share. That forecast carries with it an implicit forecast of equity/share. Calculate that implicit equity/share forecast. Then forecast the price/book ratio. Multiply the equity/share forecast by the price/book ratio forecast and you have the corresponding forecast of stock price. See details in analyticalbooks.com. I did the calculation for an investor who wanted a 12% after-tax return and planned to hold Cisco for 5 years (Post # 27689, August 17th). Given the forecasts of how fast growth would slow and how fast the price/book ratio would fall in that post, that investor could afford to pay $69.50 for Cisco, which corresponds to a P/E of 93. A P/E of 93 is a fair P/E for that investor. John Malloy