Fundamental Fridays: Cisco Systems

Welcome to the third Fundamental Friday of 2009! Today, we will cover Cisco Systems, Inc. Cisco Systems (Ticker: CSCO) is a San Jose, California It firm. Cisco was founded in 1984 and brought in revenues of $39.5 billion last year.

Cisco closed yesterday at $15.93 per share. Let’s see what the fundamentals say about CSCO.

Valuation measures - Data from Reuters

Price-earnings - Compares the current market value per share to the earnings per share.  P/E ratio for CSCO: 12.61, P/E industry average: 10.58, P/E sector average: 8.75. Signal: OVERVALUED

Price-sales - Compares the current market value per share to the revenue per share.  P/S ratio for CSCO: 2.43, P/S industry average: 2.30,  P/S sector average: 0.87. Signal: OVERVALUED

Price-cash flow - Compares the current market value per share to the cash flow per share. P/CF ratio for CSCO: 9.80, P/CF industry average: 9, P/CF sector average: 4.58. Signal: OVERVALUED

Profitability Measures 

Return on Assets – Net income relative to total assets.  ROA for CSCO: 14.05%, ROA industry average: 9.8%, ROA sector average: 4.9% 

Return on Equity – Net income relative to total equity. ROE for CSCO: 23.36%, ROE industry average: 16.55%, ROE sector average: 7.68%

Profit margin – Net income relative to revenue. PM for CSCO: 19.96%, PM industry average: 9.04%, PM sector average: 4.92%

Bottom Line: Cisco is much more profitable relative to its competitors with a profit margin of twice the industry average and four times the sector average. The stock’s ROE is 1.4 times the industry average, but its P/E, P/S and P/CF ratios are relatively close to the industry averages. 

Based on the ratios used today, TST’s Fundamental Fridays Recommendation for Cisco: BUY

Remember: This is not a recommendation to buy Cisco’s stock, this is an evaluation of selected data from Cisco’s financial statements. Ratios should always be evaluated relative to a company’s competitors, sector and industry averages to see how the company stacks up. Ratios should not be used as the sole basis for trading decisions. The data used is pulled from financial statements which have been known to be subject to manipulation and varying accounting practices.