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

To: Monty Lenard who wrote (51557)	4/16/2001 11:28:20 PM
From: Jacob Snyder	Respond to of 77400

I'm not saying he's wrong. I'm just asking him to back up his assertion with some facts or logic. And I certainly cannot be called a CSCO bull. I sold my LT holding in 1999, when they hit a PE of 100, and I have just recently started to look for a buy-in price. This is what I posted on 8/10/00, when asked about CSCO on another thread: CSCO's business model is a lot like AMZN, in fact. Rapid sales growth, no earnings. The "official" numbers on CSCO are, increasingly, an elegant work of creative accounting. Here's what I mean: Begin with the official results. Subtract the earnings due to investment gains. Padding EPS, by including these gains, is exactly what Japanese companies did in the 1980s, justifying absurd valuations through cross-holdings and Real Estate appreciation. Subtract the earnings labelled "other". "Other" is not their core business. What's left is 6 pennies. That's all CSCO made in their core business last quarter. It gets worse. Take the increase in the stock price this quarter, and multiply by the outstanding employee stock options. This is an expense, employee compensation the company is committed to. They get the benefit today, but it doesn't show up as an expense now. Subtract this number from the real earnings, or even from the "official" numbers, and CSCO made a loss for the quarter. Do the same analysis on CSCO any quarter for the last several years, and you come up with the same result. Most of their earnings are "poor quality", and they have shifted an immense amount of expenses into the future. It gets worse. The company stays ahead technologically by buying other companies. That's how they get their R&D and new products. They can only do this (buy 5-10 companies every quarter) as long as their stock is so valuable. If the stock goes down, they will have to grow internally, something they have never demonstrated an ability to do. Without a triple-digit PE, their current business model won't work. Once the stock starts going down, they will be caught in a self-reinforcing downward spiral. messages.yahoo.com