Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: yard_man who wrote (21914)	2/3/1999 9:00:00 PM
From: JC Reddy	Read Replies (3) \| Respond to of 77397

Thanks Tippet, an interesting article. From stocksite.com ------------------- Shedding light on Cisco... The big news last night was Cisco's (CSCO) earnings. Everybody was crowing about how it beat the number by a penny, and they got all lathered up about that. Then the stock sold off, ostensibly because it didn't split the stock - a cardinal sin for tech stocks over $100. Maybe we'll see a delayed reaction like we did with IBM (IBM) and Intel (INTC), where they come back and split it a couple of days later. On the other hand, there is a remote possibility that somebody might be looking at the numbers and how they're put together, and how the growth rate of the numbers compares to the price of the stock. I'd like to submit a commentary, put together following the Cisco conference call, by an analyst who works with a friend of mine. These are his notes and I think that they're very illuminating as to what's really going on. "They beat the number by $.01 a share, gave a bunch of product details, Chambers gave his normal cautionary comments (which I believe were appropriate), and analysts asked a bunch of questions that are not relevant to the big picture. Ignore it all. Its sole purpose (along with Cisco's crowded analyst meetings and presentations to the 100s of investors and analysts) is to divert everyone from the fact that Cisco is running a low-margin business whose earnings growth is slowing. "This quarter, like every other quarter, included write-offs of in-process R&D from acquired companies. Of course, the street ignores this. If these write-offs were included, earnings and margins this quarter would have been substantially less. This best way to get a feel of the long-term effect was.... Let's say they didn't ignore the write-offs related to these acquisitions over time (which would be correct because it is normal operating procedure for Cisco to acquire R&D vs. in-house development); life-to-date (about 15 years) Cisco has earned only $2.95 per share ($4.952 in retained earnings/1.679B shares). This means Cisco is selling at a 37 P/E on "TRAILING 15 YEARS" worth of earnings. This is beyond ridiculous. "Now as far as growth goes, using Cisco's version of EPS (i.e., earnings without any of the write-offs included) it is still slowing fast. EPS growth rates 1996 - 69 % 1997 - 49 % 1998 - 29% Q2-1999 - 24%, which means CSCO is selling at three times its growth rate, using its P/E of 74 (which is based on its inflated method of accounting). And this stock is considered a conservative holding by portfolio managers. "How much more ridiculous can things get?" Now, if Cisco's stock has sold off because people are starting to figure some of these things out, that would be a first. My guess is the stock probably sold off because the company didn't split its stock. But here are the real numbers. You can see how absurdly priced even Cisco is, a company that everyone is in love with. And if we did this same type of analysis, we would find that many stocks have the same sort of problem.