Cisco, Left For Dead

Cisco Systems, Inc. designs, manufactures and sells Internet Protocol based networking and other products, related to the communications and information research industry and provides services associated with these products and their use.

Business is

One way to value a business is by estimating how much cash flow it is going to generate henceforth. So, I did a reverse Discounted Cash Flow (DCF) analysis to in essence see what all was needed to justify a price of $10.

Other valuation metrics: Cisco is trading nearly at its lowest revenues multiple in the last 5 years. It's trading at substantial discounts to its revenues, book value and free cash flow 7-year average multiples. The EV/EBITDA multiple is 4.46, which translates to 22% cash-on-cash return. It's an in the extreme profitable business with an average return on equity over 21% and an average ROI of over 13%, while the last 7 years. Its current earning and the FCF multiples are substantially below the Tech sector. It's as well trading at a discount to the broad market.

Stocks by and large go in the deep value territory for a reason. One of the most common reasons causing the price fluctuations, especially within a short time, is a direct result of how the results compare with the market's expectations. I believe that afterwards going through some operational missteps, revenues/guidance debacles, Cisco realized its mistakes, underwent some meaningful mid-air course correction and appears to be on the right track now. I see a very bright future for Cisco while the upcoming and inevitable boom in the internet traffic caused by the data, apps, video/audio streaming, TV and cloud-based computing.