Very few companies can boast that ‘we were once the world’s largest company’. But Cisco System (CSCO) is one of these elite companies, and that is reflected in the Cisco share price.
Let’s rewind to the fun-filled era known as the ‘Dot-com bubble’ in 2000. During those heady days, Cisco was a darling of the US stock market. Its bullish share price was unstoppable, and its market cap peaked at more than $550 billion. Briefly, Cisco was the biggest tech behemoth in the world.
Those exciting days, alas, didn’t last. When the bubble burst, the internet-solutions company lost more than 80 percent of its value. From eighty dollars a share, it plunged to ten. Ouch! Until now, Cisco has yet to surpass its all-time peak share price attained nearly a quarter of a century ago (see chart below).
Is Cisco Systems (CSCO) a good long-term investment?
So, is Cisco a good long-term investment? This really depends on your starting point. The Cisco share price spent a decade or so (2002-2012) digesting its earlier boom-bust cycle. Only after 2013 did the enterprise-networking company start a gentle bull trend. While we note a series of higher reaction lows, the stock has stalled in recent years at $60.
In 2023, the $210-billion company, Cisco recorded revenues of $57 billion. Gross margin exceeded 60 percent; free cash flow was a chunky $15 billion. In other words, Cisco’s financial health is solid.
However, as most astute investors know, the financials of a company and how its stock price behaves can sometimes disconnect. The post-pandemic stock boom did not really set Cisco’s stock on fire (like Tesla). This means that investors no longer see Cisco as a leading tech company as before. Sentiment is focussed on the so-called “Magnificent Seven“.
Of course, fans of Cisco will highlight the company’s healthy sales and earnings growth over the past few years. This is true. Cisco currently sells enterprise architectures (SD-Access), Cisco Security Cloud, and support services. These products are recurring. Therefore, Cisco does appear to have good long-term prospects.
From the investor perspective, to get better risk-reward ratios here, it may be worth holding positions and perhaps waiting until Cisco’s share price corrects into the $30-40 band, which technically looks like support, before allocating a full position.
Is Cisco System undervalued?
Valuation is a fluid subject. The same company could be valued at wildly different capitalisation over a short space of time.
Currently, the market is not too excited about Cisco. The full attention of the bulls is concentred on AI-stocks like Nvidia (NVDA), Microsoft (MSFT) or Meta (META)
For Cisco, it is operating ‘under the radar’ so to speak. But is the company undervalued? For one, Cisco’s price-earnings ratio is a respectable 15. As a comparison, this is half of Apple (PE=30) or Google (PE=29). Cisco’s dividend yield is a good 3%. The $1.54 payout per share is not too bad when compared to other large tech stocks.
From these metrics, you can say Cisco has good value compared to other leading tech companies.
That said, when investing in Cisco you must be prepared to hold for the long haul to reap the benefit of upward re-valuation. A stock, for whatever reasons, can remain mildly under-valued for an extended period of time. In five years time, who knows, Cisco may even become better valued.
Jackson is a core part of the editorial team at GoodMoneyGuide.com.
With over 15 years industry experience as a financial analyst, he brings a wealth of knowledge and expertise to our content and readers.
Previously Jackson was the director of Stockcube Research as Head of Investors Intelligence. This pivotal role involved providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Jackson brings a huge amount of expertise in areas as diverse as global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University and has authored nearly 200 articles for GoodMoneyGuide.com.
