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

To: Crystal ball who wrote (35500)	5/13/2000 1:30:00 PM
From: The Phoenix	Read Replies (1) \| Respond to of 77398

Times change..... GE - 8 years ago Stock price - about $10 Shares outstanding - 830M Market Cap - 100B (2 times revenues 20 times earnings) Revenues - $53B Earnings - $4.7B GE - 1999 annual report Stock price - about $50 Shares outstanding - 3.3B Market Cap - $500B (5 times revenues and 45 times earnings) Revenues - $112B Earnings - $11B GE revenue growth past three years - 10% GE earnings growth past three years -15% GE valuations have steadily increased faster than their growth and I have no doubt if we investigate other large caps DOW stocks the same will hold true. There is no question that CSCO's multiples are higher - 115 times last year earnings. THe issue is clear. With revenue growth continuing to accelerate and earnings growth continuing to outpace other bellweathers is CSCO worth the premium which actually is not all that significant if one assumes that CSCO will penetrate new market segments and continue to see earnings growth accelerate. In fact at the current rate of growth CSCO's 2002 PE is the same as GE's is today. The difference - CSCO's revenue growth is 5 times larger than GE's and earnings growth is 3+ times larger. So, yes there is a premium here but the premium is based upon growth. The crux of this issue then lies is whether one believes CSCO will continue to execute as they have done for the past 10 years. If so then CSCO is a bargain at these prices. THat is if CSCO's PE sinks to say 80 and earnings and revenue cease to accelerate and simply flatten for the next two years... the result will be: Revenues - approx $40B Earnings - approx $9B Stock Price July 2002 - $111 (35% earnings/year) Given CSCO's markets and successful execution these numbers seem quite reasonable - even if not slightly conservative. Furthermore I have assumed the PE continues to decline to down to 80 which again is quite reasonable given this kind of growth.... again, what matters is one's own belief in whether CSCO can execute and THAT is THE issue that is one we should be discussing. Valuations at this point are reasonable and to assume CSCO should have valuations and backward PE's aligned to companies that aren't showing this type of growth is missing the point of investing in a growth company. All JMO of course. OG