Wednesday, August 11, 2010

Cisco Systems Whacked 7% After Hours on 18%+ Guidance

This market has become unreasonably brutal. Cisco Systems (CSCO) forecasted revenue growth of 18-20% for the next quarter yet the stock is getting absolutely whacked after hours. This is for a company trading at only 12x 2011 estimates around $1.8.

The market has lost all touch with valuation measurements. With $40B in cash, CSCO only has a market cap of $95B and earnings to exceed $10B. Trading at 9x EV is obscene for a company basically growing at around 20%. Even the CEO John Chambers commented about how the market doesn't believe they can continue to grow at the high end of their long term growth rate of 12-17%.

This stock could easily trade at double the current value based on the growth they are seeing in a weak economy. The market continues to value stocks as if they expect earnings to be cut in half. CSCO isn't owned in any of our portfolios, but its starting to appear a lot more interesting considering the compelling valuation. Just ignore all the noise regarding them missing revenue estimates. That just isn't a valuable news bit.

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