Investors often grapple with the challenge of determining the true value of a stock. Taking a closer look at Cisco Systems Inc (CSCO, Financial), we observe a notable daily loss of -9.83%, coupled with a three-month decline of -8.63%. Despite these setbacks, the company maintains a solid Earnings Per Share (EPS) of 3.31. This raises a critical question: is Cisco Systems modestly undervalued? The following analysis aims to shed light on this query, providing investors with a clearer picture of the stock's valuation.
Company Introduction
Cisco Systems Inc (CSCO, Financial) stands as the world's preeminent provider of networking equipment and ranks among the largest software companies globally. Its core business revolves around selling networking hardware, software with dominant market shares, and cybersecurity solutions like firewalls. Additionally, Cisco Systems offers collaboration products, including the Webex suite, and observability tools. The company boasts an impressive sales and marketing force, with 25,000 members spread across 90 countries, and employs a total of 80,000 people worldwide, selling its products on a global scale.
When juxtaposing Cisco Systems' stock price of $48.04 against the GF Value, an estimated fair value of $55.62, we can initiate a deep dive into the company's valuation. This comparison sets the stage for a comprehensive examination of the stock's intrinsic worth, skillfully blending financial analysis with key company insights.
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock. It is derived from historical trading multiples, including PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, along with a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. According to this measure, Cisco Systems (CSCO, Financial) is currently modestly undervalued.
Our proprietary GF Value Line suggests the fair trading value of the stock. If Cisco Systems' price significantly exceeds the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the price is substantially below this line, the stock could be undervalued, indicating the possibility of higher future returns. With a price of $48.04 per share, Cisco Systems is poised for a potentially higher long-term return than its business growth might suggest.
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Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio, which for Cisco Systems is a robust 3.12, and interest coverage are essential in assessing financial health. Ranking better than 65.39% of its peers in the Hardware industry, Cisco Systems' financial strength is strong, with a score of 8 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with a track record of consistent profitability, is typically less risky. Cisco Systems has achieved profitability for the past decade. With a revenue of $58 billion and an Earnings Per Share (EPS) of $3.31 over the past twelve months, its operating margin of 27.3% is notably high, ranking better than 97.23% of companies in the Hardware industry. This impressive profitability is reflected in its rank of 9 out of 10.
The growth of a company is a pivotal factor in its valuation. Cisco Systems' 3-year average annual revenue growth rate is 6.2%, which is commendable, though its 3-year average EBITDA growth rate of 3.4% is less competitive within the Hardware industry.
ROIC vs. WACC
Evaluating a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Cisco Systems has an ROIC of 15.92, surpassing its WACC of 11.05, indicating value creation for shareholders.
Conclusion
In summary, the stock of Cisco Systems Inc (CSCO, Financial) appears to be modestly undervalued. The company's financial strength and profitability are robust, although its growth ranks behind a significant portion of its industry peers. To gain a deeper understanding of Cisco Systems' financials, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
