Shares of networking hardware giant Cisco Systems (CSCO -0.33%) have trended lower this year, just like most other tech stocks. A 25% decline in the stock price has made it look cheap. Cisco reported adjusted earnings per share of $3.36 in fiscal 2022, which ended July 30, putting the price-to-earnings ratio at 14.

That's not a particularly optimistic valuation for a company that is the overwhelming leader in its core markets. Cisco held a 42.3% share of the ethernet switch market in the second quarter, more than quadruple its next-largest competitor. In the service provider and enterprise router market, Cisco captured roughly one-third of all sales.

Despite Cisco's dominance, the company is prone to big drops in demand when economic uncertainty runs high. Cisco's products are mission critical, but it's also easy for an enterprise customer to delay upgrades during tough economic conditions.

With a recession a possibility in 2023, is now the time to buy Cisco stock?

So far, so good

Looking at Cisco's latest quarterly results, the company appears to be doing just fine. Revenue rose 7% year over year to $13.6 billion in the fiscal first quarter ended Oct. 29, and adjusted EPS jumped 5% to $0.86.

Importantly, Cisco's guidance for the full year is optimistic. The company sees revenue growing by between 4.5% and 6.5%, with non-GAAP EPS solidly above fiscal 2022 levels.

Cisco's transformation into a solutions provider is making the company's results a bit more predictable. While selling hardware is still the core business, the company has grown into a recurring revenue powerhouse. Subscriptions generated $5.9 billion of revenue in the first quarter, about 43% of total revenue. Of that, software subscription revenue was $3.3 billion, while service subscription revenue totaled $2.5 billion.

Cisco's results this year will be partly driven by a big backlog of orders. The company expects to end the fiscal year with a backlog that's two to three times larger than historical levels. Supply chain constraints throughout the pandemic have held up hardware shipments, and any software subscriptions tied to that hardware also got caught up in the backlog. Cisco's software subscription revenue surged 11% in the first quarter, as some of those subscriptions got delivered, although the company still has more than $2 billion of software in its backlog.

Even if global economies enter recession next year, Cisco's enormous backlog and its trove of subscription revenue should help prop up sales for a while, even if underlying demand deteriorates.

Product orders are tumbling

While Cisco expects revenue to grow this year, it's already seeing its customers pulling back on new orders. Total product orders plunged 14% in the first quarter. Europe, the Middle East, and Africa was the worst geographic segment for Cisco, with product orders down 23%. The company pointed to sky-high energy prices in Europe as one reason for the pullback, but it noted that some of its product lines that focus on lowering energy consumption could do well in this environment.

While orders were down, this was still the second-largest order tally for the first quarter in Cisco's history. Cisco had a difficult comparison against an extremely strong quarter for orders last year.

And it wasn't all bad news: Product orders coming from U.S. enterprise customers grew slightly, partly offsetting weakness from other customer groups.

Cisco's order backlog gives it visibility into revenue over the next few quarters, but if product orders continue to deteriorate, the company will work through that backlog and once again be at the mercy of end-market demand. And if a recession does strike next year, a prolonged period of weak product orders seems likely.

Is Cisco stock a buy?

Cisco's dominant market position and inexpensive valuation make it one of the most appealing tech stocks to buy right now. However, anyone who's considering investing in Cisco needs to understand that the company's revenue and profits can be a bit volatile. An overloaded backlog is smoothing things out right now, but that can't last forever.

Be ready for a revenue and profit decline sometime next year if global economies continue to deteriorate. In the long run, Cisco is aiming to grow revenue and profit by 5% to 7% annually. But that won't happen every year. If you're a long-term investor able to stomach some temporary setbacks, Cisco is a great stock to buy.