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Motley Fool Staff
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March 9, 2010
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In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.
Today's matchup is Google (Nasdaq: GOOG ) vs. Cisco Systems (Nasdaq: CSCO ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:
Round 1: Cheapness
Advantage: Cisco Systems. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).
Round 2: Growth
Advantage: Google. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.
Round 3: Operations
Advantage: Google. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.
Round 4: Balance sheet
Advantage: Google. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).
Round 5: CAPS rating
Advantage: Cisco Systems. A company’s CAPS rating is our community’s opinion of the stock. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS area.
Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Microsoft (Nasdaq: MSFT ) and Alcatel-Lucent (NYSE: ALU ) . But these basic numbers suggest that Google is a better buy. What do you think? Let us know in the comments section below.
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