Is Cisco Systems (CSCO) Fairly Priced After Strong Multi Year Share Price Gains

• If you are wondering whether Cisco Systems' current share price lines up with its underlying worth, you are not alone. Many investors are asking the same question right now.
• Cisco's stock has recently closed at US$81.16, with returns of 2.8% over the last 7 days, 7.4% over 30 days, 6.7% year to date, 32.9% over 1 year, 88.2% over 3 years and 98.6% over 5 years, which naturally raises questions about what is already priced in.
• Recent headlines around Cisco have focused on its role as a major networking and security vendor in a market that continues to rely heavily on data traffic and connectivity. At the same time, ongoing discussion about large technology companies' positioning in areas like cloud infrastructure and cybersecurity helps frame how investors think about Cisco's current share price.
• On our checks, Cisco scores 3 out of 6 for potential undervaluation. Next, we will look at what different valuation methods say about that score, before finishing with a more complete way to think about Cisco's valuation story.

Cisco Systems delivered 32.9% returns over the last year. See how this stacks up to the rest of the Communications industry.

Approach 1: Cisco Systems Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes the cash Cisco Systems is expected to generate in the future and discounts those projections back to a single estimate of what the business could be worth in $ today.

Cisco's latest twelve month free cash flow sits at about $12.9b. The DCF model here uses a 2 Stage Free Cash Flow to Equity approach, which combines analyst estimates for the next few years with longer term projections supplied by Simply Wall St. By 2030, projected free cash flow reaches about $19.4b, with a series of annual projections between 2026 and 2035 discounted back to their value in today's terms.

When those discounted cash flows are added together, the model arrives at an intrinsic value of about US$83.57 per share. Compared with the recent share price of US$81.16, this implies Cisco is trading at roughly a 2.9% discount to that estimate. This points to a price that is close to the model's fair value range rather than clearly cheap or expensive.

Result: ABOUT RIGHT

Cisco Systems is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cisco Systems.

Approach 2: Cisco Systems Price vs Earnings

For a profitable company like Cisco Systems, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. Investors usually accept a higher or lower P/E depending on what they expect for future growth and how risky they think those earnings are compared with other opportunities.

Cisco currently trades on a P/E of 31.05x. That is very similar to the Communications industry average P/E of 31.05x, and below the peer group average of 36.45x. On the surface, that puts Cisco roughly in line with its wider industry, while peers, on average, trade at a higher multiple.

Simply Wall St’s Fair Ratio for Cisco is 31.05x. This is a proprietary estimate of what Cisco’s P/E might be, given factors such as its earnings growth profile, profit margins, market capitalization, risk characteristics and its Communications industry exposure. Because it adjusts for these company specific inputs, the Fair Ratio can be more informative than simply lining Cisco up against broad industry or peer averages.

With Cisco’s actual P/E almost identical to the Fair Ratio, the shares look close to fairly valued on this metric.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Cisco Systems Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which let you describe your view of Cisco Systems in a clear story that sits behind the numbers like fair value, and your estimates for future revenue, earnings and margins. A Narrative links what you believe about the business to a financial forecast, then to a fair value that you can compare directly with Cisco’s current share price. On Simply Wall St, Narratives sit inside the Community page and are designed to be easy to use, so you can quickly plug in your assumptions without heavy modelling. This helps you evaluate whether Cisco may be suitable for your portfolio by comparing your Fair Value with today’s Price. Narratives also update when new information arrives, such as news or earnings, so your story and valuation stay current. For example, one Cisco Narrative might reflect a higher fair value based on assumptions of stronger long term profitability, while another might reflect a lower fair value based on more cautious margin expectations.

Do you think there's more to the story for Cisco Systems? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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