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

To: Eric L who wrote (34240)	4/20/2000 4:53:00 PM
From: bambs	Read Replies (1) \| Respond to of 77400

Let's talk about the share price and work backward. We will start by buying today at $65. Let's say we want 12% return on our investment in CSCO year over year for 5 years. You have to want at least that return considering the risks involved here. Gary suggested $92 and a P/E of 30 in 2005. $92 that's only 7% return. Sounds like a bad risk to reward Gary. Remember IBM has a P/E of 25 currently. $72.80 in 2001 $81.54 in 2002 $91.32 in 2003 $102.28 in 2004 $114.56 in 2005 Market cap $795 Bil Now I think that at best we can give CSCO P/E of 50 in 2005. That's still twice IBM. (think CSCO should have a P/E of 30-35 in 2005) But we will take 40 as the 2005 P/E Currently CSCO has: Profit Margin 16.9% Operating Margin 23.4% Assuming that this doesn't change. (most likely will shrink with increased competition) To get a P/E of 40 with a market cap of $795 bil you need earnings of $19.88 bil in 2005. To match the current Profit Margin of 16.9% CSCO needs to have revenue of $117.6 bil in 2005. Now to go from $16 bill to $117 bil. Buy 2005 CSCO needs 50% growth of revenue and earnings every year! And it will still be over valued in 2005 and trading with a P/E of 40. So the work isn't done there. And folks...that's the risk you take just to get 12% a year return. Think about the fact that Intel, INTC could only grow its revenue by 12% this past year to 30 bil. Also, consider that this should have been a banner year for INTC. Y2K upgrades everywhere. Companies even got tax breaks to buy new computers this year. When I have the energy I will do the numbers with realistic expectations of year over year growth and give what I would call a fair value to CSCO. I'm not trying to be a smart ass but just try to give people a real idea of that they are investing in. I know many people that bought Dell in and around last May and have found out the hard way that unless you get in early like the old boys on this board growth stocks always...ALWAYS under perform the market once they stop growing at 50% a year until the P/E comes back into line. So, if you invest in CSCO at these price levels you most like will get very little return for your investment in 2005. So if you buy...make sure that you follow this board very well so Gary can tell you when to dump your shares on some sucker like he did his COMS at $110. Now trading at $40. Gary will you admit that as soon as the momentum comes out of this stock you are gone! As soon as you realize that this stock is going to trade like a Dell you are gone. As soon as CSCO stops growing at 50% a year the stock is dead money. Will you admit that that time is getting near! Here's a couple more points to consider. 1. .com crazy is taking a beating. Investors aren't going to be driving money into .com companies anymore. The .com businesses that where buying CSCO routers and services last year will by buying less this year. Less start up .coms as well. 2. Companies like IBM and Quest are partnering to build massive web servers to host sites for all sizes of businesses. The increase in off site web services will impact on CSCO's sales. 3. Competition is increasing every day and margins will suffer. 4. Interest rates will impact on companies capital expenditures...I think many companies will find themselves putting off the big CSCO order they were thinking of getting. 5. Finally, 50% growth year over year til 2005 will not happen!!! Here's some revenue growth rates to consider. INTC 12% IBM 7% MSFT 22%. Most techs will grow at 35% next year. The bigger you get the harder it gets to grow. I will be back with more to think about. Bambs