Call it the week for mediocrity rewarded. Yesterday I took a look at Coca-Cola, a company I like that just doesn't seem like a great investment idea.
Revenue grew 9.3% for the quarter, and earnings per share were up 4.8%. That might sound slim, but since last year's numbers didn't include stock option expenses, and this year's do, the EPS growth comes to 18%. Free cash flow for the first half of the year (and I include acquisitions in capex) comes to $2.7 billion, a 13.2% gain.
Inventory didn't grow much year over year. In fact, it lagged sales growth, which is unusually nice to see in an industry where stale goods are ground up for cattle feed. (Well, maybe not, but they might as well be.) According to the prior-year numbers I get from Capital IQ, inventory turns, at 6.5, were the same as last year. Days sales outstanding moved to 35 days, from 32.2 for the period in 2005. The company has been buying back scads of shares while the price was low.
In other words, this a pretty healthy report from a market-leading company. So why the rainclouds up in the opening paragraph? I just don't think it's cheap enough.
Yes, management is excited about new opportunities in developing technologies such as TV. And yes, I've heard some pretty smart people make a good case for Cisco's bargain status by comparing its current multiple to its historical average multiple. But there comes a time when we need to outgrow that kind of simplistic relativism. Cisco was granted a high multiple for a long time because people expected it to take over the world, and maybe the universe.
Those days are past. Cisco is mature, and there are still hungry competitors like Juniper Networks
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