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Is it Still Safe to Invest in Cisco (CSCO)?

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Hayden Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. During the first quarter of 2021, Hayden Capital declined by -39.2%. The fund has generated a +15.6% annualized return for our partners since our portfolio’s inception. The fund invests globally across the market cap spectrum - seeking opportunities to purchase high-quality franchise businesses at discounted valuations. Try to spend some time looking at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q1 2022 investor letter, Hayden Capital mentioned Cisco Systems, Inc. (NASDAQ:CSCO) and explained its insights for the company. Founded in 1984, Cisco Systems, Inc. (NASDAQ:CSCO) is a San Jose, California-based multinational technology conglomerate corporation with a $179.0 billion market capitalization. Cisco Systems, Inc. (NASDAQ:CSCO) delivered a -31.77% return since the beginning of the year, while its 12-month returns are down by -20.18%. The stock closed at $43.24 per share on June 13, 2022.

Here is what Hayden Capital has to say about Cisco Systems, Inc. (NASDAQ:CSCO) in its Q1 2022 investor letter:

"During the height of the tech bubble, Cisco’s stock peaked at ~$80 in March 2000, reaching up to a $500BN+ valuation (~26x Price / Sales, with ~17% operating margins or 156x operating profits). However, by the time it bottomed in September 2002, shares were trading at just ~$8.60 per share (~3.2x Price / Sales, ~21x operating profits). A little over a year later, the share price had doubled to ~$20, but then continued to trade around those levels in a range for the next 10 years.

So why were Amazon and Mercado Libre able to recover so quickly from their large draw-downs, while Cisco’s stock price remained anemic?

It seems the answer is in their differing growth profiles in the years afterwards. For example, Cisco revenues were $18.9BN in 2000, $22.3BN in 2001, $18.9BN in 2002, $18.9BN in 2003, and $22.0BN in 2004. By contrast, Amazon was able to grow its business by ~120% in the 3 years after the stock bottomed, and Mercado Libre grew by ~118% in the following 3 years. For Cisco, it wasn’t until 2012 (11 years later) that revenues managed to double (to $46BN) from its original peak. Compare this to Amazon, who during those same 11 years, managed to grow its business 22x."

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cisco, valley, silicon, logo, network, switch, tech, provider, business, sign, symbol, infrastructure, hub, technology, computer, equipment, computing, bone, electronic,

Ken Wolter / Shutterstock.com

Our calculations show that Cisco Systems, Inc. (NASDAQ:CSCO) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Cisco Systems, Inc. (NASDAQ:CSCO) was in 66 hedge fund portfolios at the end of the first quarter of 2022, compared to 57 funds in the previous quarter. Cisco Systems, Inc. (NASDAQ:CSCO) delivered a -20.37% return in the past 3 months.

In January 2022, we also shared another hedge fund’s views on Cisco Systems, Inc. (NASDAQ:CSCO) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.