The one-year underlying earnings growth at Cisco Systems (NASDAQ:CSCO) is promising, but the shareholders are still in the red over that time
The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Cisco Systems, Inc. (NASDAQ:CSCO) share price slid 19% over twelve months. That falls noticeably short of the market decline of around 13%. However, the longer term returns haven't been so bad, with the stock down 4.3% in the last three years.
With the stock having lost 4.3% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
View our latest analysis for Cisco Systems
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Even though the Cisco Systems share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.
It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.
Revenue was pretty flat on last year, which isn't too bad. But the share price might be lower because the market expected a meaningful improvement, and got none.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Cisco Systems is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Cisco Systems stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Cisco Systems the TSR over the last 1 year was -17%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 13% in the twelve months, Cisco Systems shareholders did even worse, losing 17% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Importantly, we haven't analysed Cisco Systems' dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
But note: Cisco Systems may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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