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

To: RetiredNow who wrote (63074)	2/11/2003 8:43:33 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Yes, the numbers are coming from core operations. Stock prices are not in line with current core operations however. They are in line with growth. And not the kind of growth that can be reasonably expected, but the kind of growth that is hard for a reasonable person to expect. What do I mean... well, a company can grow revenues in two ways: (a) grow its customer base by acquisition of share, or (b) increase the revenue per customer. Option (a) is pretty much out of the picture for Cisco (can you name a significant company that ISN'T a Cisco customer??? And most of Cisco's customers would rather fire their CIO than allow (b) to happen, and their CIOs know it. So that option is not really on either. Doesn't take a rocket scientist to do the math, even without crunching numbers. Not surprising that for two years Cisco has not significantly increased shareholder equity. For a company priced as though it is a foregone conclusion that shareholder equity will go up by factor 5 in less than 28 years... that's got to be causing an uptick in the sales of pepto bismal. Furthermore, when we reflect that the current shareholder equity was not "built" by core operations, but is actually the residual effect of a much larger equity transfer from shareholders in the first place, add Maalox to the mix. Particularly now, as you have correctly observed, this source of "wealth" has evaporated. The good news is that core operations is quite healthy. In fact, it is able to generate enough cash to reduce the share count by 2% annually. Which is good. But not enough. If this keeps up for 20 years, the company will have reduced shares outstanding by enough so that shareholder equity will be about $6 per share. Which works out to a rate of return from today's prices that's still substantially negative. As good as it is, the company needs to do much better than it is doing today. Which is a sobering thought indeed, considering that we're talking about Cisco! John