As of August 17, 2023, Cisco Systems Inc (CSCO, Financial) stock price is $54.99, showing a daily gain of 3.83% and a 3-month gain of 16.38%. With an Earnings Per Share (EPS) of 2.78, the question arises: is the stock fairly valued? This article aims to answer this question through a comprehensive valuation analysis of Cisco Systems. We encourage you to read on for a deeper understanding of the company's value.
Company Snapshot
Cisco Systems is the world's largest provider of networking equipment and one of the largest software companies. It boasts leading market shares in selling networking hardware and software, as well as cybersecurity software like firewalls. Additionally, Cisco Systems offers collaboration products, such as its Webex suite, and observability tools. The company primarily outsources its manufacturing to third parties and has a large sales and marketing staff—25,000 strong across 90 countries. Overall, Cisco employs 80,000 employees and sells its products globally. With a market cap of $224.10 billion and a stock price of $54.99, it matches closely with the GF Value of $54.79, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Currently, Cisco Systems (CSCO, Financial) appears to be fairly valued based on the GF Value calculation.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's important to review a company's financial strength before deciding to buy shares. Cisco Systems has a cash-to-debt ratio of 2.77, which ranks better than 63.19% of companies in the Hardware industry. Based on this, GuruFocus ranks Cisco Systems's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Cisco Systems has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $54.90 billion and Earnings Per Share (EPS) of $2.78. Its operating margin is 26.48%, which ranks better than 96.82% of companies in the Hardware industry. Overall, the profitability of Cisco Systems is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Cisco Systems's 3-year average revenue growth rate is worse than 57.65% of companies in the Hardware industry. Its 3-year average EBITDA growth rate is 1%, which ranks worse than 67.56% of companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way of determining its profitability. For the past 12 months, Cisco Systems's ROIC is 14.73, and its cost of capital is 10.46, suggesting that the company is creating value for shareholders.
Conclusion
In conclusion, the stock of Cisco Systems (CSCO, Financial) appears to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 67.56% of companies in the Hardware industry. To learn more about Cisco Systems stock, you can check out its 30-Year Financials here.
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