Cisco Systems (NASDAQ:CSCO) is due to report fiscal third-quarter earnings after the close tomorrow. It has a long history of beating estimates by a penny per share, with two exceptions being the July 2003 quarter when it merely met estimates and the Oct. 2003 quarter when it beat by $0.02.
The estimate for the quarter tomorrow is $0.18. Given its history, the market should not be surprised if Cisco earns $0.19. The more important thing, however, will be the outlook and comments given by CEO John Chambers on the conference call.
Cisco is down 25% from its Jan.16, 2003 high of $29.13 compared to the Nasdaq, which is down 10% in the same time period. All of this is useful information but it is looking in the rearview mirror.
Looking forward, this growth stock does not look to be poised for the same explosive growth it has had in the past. Consensus estimates call for the company to earn $0.72 this year and $0.83 next year. This represents year-over-year growth of 15%. That would be fine except for the fact that Cisco trades at 35 times trailing earnings.
Cisco's revenues are estimated to grow by 10% next year to $24.45 billion. The stock trades at 7.4 times sales and 5.3 times book value. Every measure available makes this stock look expensive.
Cisco has matured, so it's natural that growth has slowed down, but it still trades like a stock that has its best growth years in front of it. Think that's wrong? Cisco has a similar forward P/E of 26.2, as high fliers Marvell Technology (NASDAQ:MRVL) and Research In Motion (NASDAQ:RIMM) at 23.5 and 25, respectively. Want another little nugget that may not bode well for Cisco's future growth? Its revenue is larger than the market cap of most of its competitors.
A couple of things could go right for Cisco over the next couple of months. Putting up blockbuster earnings combined with impressive forward-looking guidance would certainly do the trick. A more likely scenario to help Cisco's stock price would be that the Nasdaq finds a bottom in the next few weeks and has a rally that takes Cisco with it.
What do you think? Is Cisco primed for more growth or not? Share your opinions on the Cisco discussion board.
Fool contributor Roger Nusbaum is an investment advisor and wildland firefighter in Prescott, Ariz. At the time of this article, neither he nor his clients owned any of the stocks mentioned in this article.
