Frankly speaking, I have only recently discovered that I have a Cisco router myself. Perhaps, you also have a couple of its devices. Warren Buffett once said that you should buy stocks of the company the products of which you are actually using. That sounds like great advice especially if you carefully pick assets for the portfolio and diversify them.
With the $171 billions market capitalization, Cisco’s S&P 500 is 0.69 %. This is one of the world’s titans in the high-tech sector. Initially, it produced only routers.
The company was founded by Leonard Bosack and Sandy Lerner, the husband and wife team, back in 1984. They both were working in the computer lab at Stanford University.
Leonard was dealing with the adaptation of protocol router software originally written by William Yeager. Cisco was not the first company to design and make routers. However, it was the first to become so commercially successful.
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1. What is the key to Cisco’s success and why hasn’t the pioneer in this field received such recognition
2. Fundamental Analysis
3. Technical Analysis
According to the founders, the secret lies in careful selection and training of IT specialists and a multi-level business model. By the way, certificates issued by Cisco are recognized by many companies.
It is typically easier to evaluate cash flow through the lens of mergers and acquisitions. It also makes sense to find out how much the company is willing to spend on promising projects.
In 1996, the company purchased StrataCom, making its way to the ATM equipment market. After entering the IP telephony market, Cisco acquired Linksys, a manufacturer of networking equipment for homes and offices.
In 2009, despite the crisis, Cisco spent $3.4 billion on Norwegian company Tandberg, becoming the world’s leader in video-conferencing products. This was followed by another acquisition of Cloupia, manufacturer of converged infrastructure solutions (FlexPod, vBlock) in 2012.
In 2013, Cisco purchased Sourcefire, a technology company that developed network security hardware and software, for $2.7 billion. Its next catch in 2014 was private cloud player Metacloud. Later Cisco spent $3.7 billion on AppDynamics, application performance management and IT operations analytics company.
In 2017, Cisco purchased Viptela, a software-defined networking startup, and Saggezza, a privately-held technology services company for some $610 million. It comes as no surprise that Cisco didn’t stop there, and got its hands on Springрath, a developer of a software-defined storage network which forms the backbone of the Cisco’s HyperFlex hyper-converged infrastructure platform.
Over the past five years, the company’s revenue growth rate has been rather unimpressive. Perhaps, this explains why the attention was mostly focused on fast-growing companies or those that promise a lot but don’t always deliver.
From 2015 to 2019, there was a steady growth in revenues which increased from $49 to $51 billion. The same goes for the net profit which climbed up from $8.98 to $11.62 billion. The company employs 75,900 employees and has a solid dividend yield of 3.60% (1.96% by market).
The average expected EPS has been about $ 2.5 for years. With the said P/E figures at the current price, we have exactly 15 which is a fair value. Meanwhile, many companies in the tech sector have long moved beyond the point of 20-30 P/E.
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Now, let's take a closer look at the latest quarterly reports. Over the past six reports, the price has remained steady at around $0.8 per share. This means that we can expect the company to reach $3.2 per year. At the current price of 39.59, P/E shifts to the undervalued area of 12.37. The company may pose interest given its dividend yield and striking profitability figures:
While the company’s stock was trading at its highs, with P/E being about 20. However, the market firmly adjusted the quotes. A drop in the S&P 500 by over 15% created more tension, and the stock plummeted 13% in just a week. Following the first wave of decline, there was an attempt to retest 49.51 which resulted in panic sales below 46.
Now the instrument plummeted below 40 which is precisely the key mark at the moment. If the instrument manages to go higher, there is every chance that a significant interest will be sparked interest based on the fundamental and technical analysis, especially with the publication of quarterly reports.
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Аutor: Viktor Makeev
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