Does Cisco Systems (NASDAQ:CSCO) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
November 28, 2021
NasdaqGS:CSCO
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like Cisco Systems (NASDAQ:CSCO), which has not only revenues, but also profits. Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Cisco Systems

How Fast Is Cisco Systems Growing Its Earnings Per Share?

Over the last three years, Cisco Systems has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Over twelve months, Cisco Systems increased its EPS from US$2.47 to US$2.70. That amounts to a small improvement of 9.5%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Cisco Systems maintained stable EBIT margins over the last year, all while growing revenue 5.7% to US$51b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:CSCO Earnings and Revenue History November 29th 2021

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Cisco Systems.

Are Cisco Systems Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$231b company like Cisco Systems. But we do take comfort from the fact that they are investors in the company. With a whopping US$60m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

Should You Add Cisco Systems To Your Watchlist?

One positive for Cisco Systems is that it is growing EPS. That's nice to see. Just as polish makes silverware pop, the high level of insider ownership enhances my enthusiasm for this growth. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Now, you could try to make up your mind on Cisco Systems by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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