Hitting pre-market trading levels over 10% lower than yesterday's close, and representing over 2% of the entire NASDAQ exchange, Cisco is starting to look more like a dog than a bull.
Cisco reported its earnings in after-hours yesterday and while profits topped expectations, the revenue forecast was lower than anticipated with gross margin being at fault this quarter. See that news here. This is the third consecutive quarter of earnings disappointments. Should investors hang tough, or cut their losses and move on?
The price dropped in pre-market trading over 10% from a close of $22.04 on Tuesday. Investors cannot be pleased with that sort of response and may find further motivation to jump ship if prices continues to sink.
Is Cisco a truly undervalued company, or is there something fundamentally wrong with it? Investors may still stand to gain from holding Cisco, but a thorough analysis of its financials is necessary to determine its future potential. Utilizing the Du Pont identity to break down return on investment, the company is strong in all areas: asset use efficiency (.49), operating efficiency (.19) and leverage (1.83). Using competitor Hewlett-Packard
The past year has not been kind to Cisco. While the market has shown tremendous gains in light of the ongoing economic recovery, Cisco is trading lower than it was one year ago. Cisco's balance sheet is good, and it does not appear to be in any sort of financial trouble. Growth stocks are notoriously vulnerable to overreactions following earnings reports that do not meet expectations. All things considered, it may be a great time to invest in Cisco. It is down over 10% in pre-market trading, boasts solid financials, and has the potential to make a long-term recovery once it can match earnings estimates.
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