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

To: Stock Farmer who wrote (53326)	5/23/2001 6:41:04 AM
From: Wyätt Gwyön	Respond to of 77400

John, Interesting post... I think you are right. Heck, they're barely sustainable at 20 B$, but who's counting. I know you know that <g>, but I just wanted to make that point while people are creating complex justifications for a rising share price, there remain some fundamental flies in the ointment. And so if CSCO's net margins were 5% instead of 15%, the company would require revs of 3X182BB or $546 BILLION ten years hence under your 20-PE scenario in order to deserve a price of $82. Cisco is extremely difficult to model from a business perspective because of the effect of stock price on the stock price. This begs an explanation. I think that is why some people prefer to look at the fig leaf of an operating company and ignore the strange noises in the shadows (ca. 2000: sacks of option gold being dumped in a big heap; ca. 2001: that giant sucking sound). the only problem is that the "side games" are so huge relative to actual operating profits, as you pointed out before. Which makes the model extremely difficult to develop. And that is why other people think it is hogwash for an operating company to be engaged in sideshows. But the going was so good, I don't expect them to quit easily. But one thing people should note is that when they buy a share of cisco, a fraction of that money goes to the stream of cash flow they thought they were buying. In a very kind of leveraged kind of pyramid kind of way. Pyramid-like structures in our economy have shown they have some resiliency. In the case of options-issuing tech companies, e.g., they can reissue or reprice existing options, for example, which is pleasing to employees and for some reason does not seem to bother shareholders. However, I doubt anyone can keep a large-scale pyramid going for good. Eventually the imbalance between the players and the marks gets too great and the thing collapses under its own weight. I guess the one pyramid that will be the most interesting to watch going forward is Social Security.