Over the last several years, Cisco Systems (NASDAQ:CSCO) has worked to update its legacy portfolio of services to better compete against various high-growth innovative players it competes with in its different markets. But because of the company's large scale, the transition has taken some time, and it contributed to the tech giant reporting a fifth consecutive quarter of year-over-year revenue decline last week.

The recent performance has given Cisco a valuation that corresponds to modest expectations. Does that suggest the tech giant's stock a buy at the moment? Or is it a value trap?

Cisco had declining revenue on a year-over-year basis

Cisco remains the dominant vendor of networking solutions, with its hardware switches and routers that carry traffic across networks. Over the last several years, it developed and acquired businesses to generate cross-selling opportunities with its core networking activities. For instance, it has become a large cybersecurity vendor, and it proposes unified communication solutions.

IT technician with a laptop and engineer are talking in data center while walking next to server racks.

Image source: Getty Images.

Yet because of its legacy hardware business, Cisco posted declining revenue over the past five quarters. During the last quarter, revenue dropped slightly to $11.96 billion, down from $12.01 billion one year ago.

In particular, the company's largest segment, infrastructure platforms (which includes legacy hardware products), declined 3% year over year to $6.4 billion.

In contrast, Cisco's transition to subscription-based software led to some encouraging results. For instance, cybersecurity grew 10% year over year to $822 million, thanks to the cloud-based identity and remote working solutions Duo and Umbrella. And during the earnings call, CEO Chuck Robbins mentioned that the communications platform WebEx generated double-digit-percentage revenue growth with almost 600 million quarterly average users. 

High-growth opportunities still exist for Cisco

Beyond those short-term results, Robbins provided for the first time extra information about the company's performance with web-scale (large cloud computing) providers. He said that the web-scale business has become meaningful at 25% of the service provider segment after having delivered its "fifth consecutive quarter of very rapid order growth, increasing to triple digits." 

That development bodes well for Cisco's long-term potential. Indeed, over the last several years, the company hadn't managed to develop a competitive cloud offering against its rival Arista Networks. As a result, its market share in the high-speed data center switching market dropped from 64.7% in 2015 to 43.7% during the first half of last year.

But Cisco is finally gaining traction in the networking cloud computing area, thanks to its new Cisco Silicon One offering released in December 2019. With that new product, the company didn't stay entrenched with monolithic solutions that contributed to huge profits over the last decades; it finally disaggregated hardware and software to better address the demand of cloud vendors and service providers.

So Cisco eventually showed it could adapt and compete against agile and innovative smaller players, which bodes well for its future, as it's looking to address extra high-growth opportunities with new offerings.

For instance, in October it revealed a partnership to propose an edge computing platform as a service for service providers, which allows the company to compete against high-growth players, such as Fastly and Cloudflare, in the content delivery network and edge computing areas. Those technologies represent strong growth potential as they contribute to improving the response time of online services.

Also, Robbins said on the earnings call that the company is working on a full-stack observability platform, for customers to monitor their complete computing infrastructures and applications to improve performance and anticipate issues. That means Cisco will be looking to compete against high-growth observability specialists such as Dynatrace and Datadog.

Cisco is trading at a reasonable price

Looking forward, management expects year-over-year revenue growth to reach 3.5% to 5.5% during the current quarter, ending on May 1, which looks solid. But compared to last year, the current quarter includes one extra week that should contribute to about 2% to 3% of year-over-year revenue growth, according to CFO Scott Herren. And during the prior-year period, revenue declined 8% year over year, which provides an easy comparison for the current quarter. 

So given Cisco's unexciting results and guidance, the stock is trading at a modest forward price-to-earnings ratio of 14.3.

However, the recent encouraging developments with web-scale cloud vendors show the tech giant is able to update its legacy portfolio with competitive offerings in growth areas. Thus, since the market isn't pricing in Cisco's growth opportunities, investors should consider buying the tech stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.