CSCO Stock Report

2-Year Price History

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Ockham's Rating

CSCO Stock Evaluation

Because of a relatively quiet week from a price movement perspective, there has been little change in the valuation of CSCO recently. Furthermore, there has been no change to the earnings guidance given by the company's management in the last week. Those are two key factors in our fundamental analysis which are unchanged since our last report. In accordance with these static factors, we see no catalyst for a ratings change this week.

CSCO Revenue

As a value investing shop, we are interested in seeing how CSCO's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 5.66x and the low end of the range at 3.24x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for CSCO of 2.81x is well below its normal historic Price to Sales levels. At a price of $18.50, CSCO is 37% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

CSCO Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. CSCO is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from CSCO. For example, CSCO's Cash Earnings ratio per share has fluctuated between 13.96 and 23.47 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where CSCO is with respect to prior business periods.

So with CSCO's current price (latest close of $18.50) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, CSCO is 35% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with CSCO.

CSCO Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations. As far as our investing methodology goes, it is not necessary to pay a dividend in order to get a favorable rating, so as for right now CSCO gets a neutral rating for the dividend portion of the model. As you can see, we are not receiving historical dividend information from our data provider on CSCO at this time.