Monday, December 27, 2010

Ending the Cisco Skid

A new article in Barron's written by Michael Santoli on Cisco's (CSCO) future prospects. It makes the following points:

- When the Nasdaq peaked a decade or so ago, Cisco was selling at 130 times earnings, a huge premium.

- The company was being given too much credit for growth prospects.

The company's earnings multiple is a fraction of what it was back then (more like 12x). From the article:

Investors, making the opposite error they made in 2000, have priced in too much skepticism about Cisco's growth prospects and market-share position, making the stock an attractive opportunity for patient buyers.

Check out the entire article.

Cisco is just one of many tech stocks that a mere decade or so ago sold for an extreme multiple of earnings.

In the past ten years or so, many large cap tech stocks have seen their price to earnings ratio compress dramatically even as the businesses themselves have continued to prosper.

Adam

Long position in CSCO

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