What’s going on with Cisco stock

Cisco stock tumbled last week, according to S&P Global Market Intelligence. The revenues of Cisco Systems (NASDAQ:CSCO), the creator of networking, software, and cloud computing solutions, fell in its fiscal third quarter. Furthermore, it’s guiding for a decrease in revenue in the fourth quarter. Shares dropped as low as -16.7% on Thursday but ended the week slightly better at -12.37%.

Why we care

Cisco released its earnings for the three months ending in April after the market closed on Wednesday. During the third quarter, revenue was $12.8 billion, which was virtually the same as the same period last year. Adjusted EPS was $0.87 for the same period, which exceeded analysts’ expectations. However, revenue fell well below the $13.34 billion consensus forecast.

On top of that, Cisco announced disappointing guidance for a 1% to 5.5% revenue drop next quarter instead of optimistic expectations for 6% growth. These poor top-line figures are likely why investors are selling off the stock this week.

However, the news isn’t all bad for Cisco. The full year of 2022 predicts revenue to rise between 2% and 3%. That will hopefully mean that the outlook fourth-quarter drop was only temporary due to the pandemic’s pull-forward in demand.

The firm’s financials are equally as strong, with $9.5 billion in operating cash flow through the first nine months of the fiscal year 2022. Even if it isn’t exponential growth, there’s a reason why Cisco’s stock trades at a market value of $172 billion: all the cash flow it produces.

What now

Cisco Systems is currently trading at a price-to-operating cash flow (P/OCF) of 12, with a trailing 12-month operating cash flow of $14.3 billion. Given the company’s sluggish growth, this proportion is well below the market average.

Cisco has paid out a healthy dividend to investors for years, currently yielding 3.64%, and it has steadily repurchased shares over the last decade. These capital return methods will aid Cisco’s long-term total return even if the company doesn’t expand much.

Cisco is a mature company with a long record of success. Therefore, investors should not anticipate revenue to explode at a rapid pace. Of course, given that Cisco stock tumbled, these downgrades are never pleasant. However, they shouldn’t be a significant worry for investors in the company.

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