Since 2011 began, investors have cut 20% off the market cap at Cisco Systems (Nasdaq: CSCO), a loss five times as big as the 4% decline we've seen in the Dow Jones Industrial Average (INDEX: ^DJI). But on Tuesday, Cisco shareholders suffered perhaps the cruelest cut of all -- one of their company's own making. 

For years, Cisco assured investors its future was bright and would be marked by double-digit annual earnings growth. But on Tuesday, management cut its forecast for long-term growth. Revenue targets that once boasted of "12% to 17%" goals have been slashed to just 5% to 7% growth targets for the next few years. Cisco still insists that it will expand margins even as it competes more ferociously with rivals like Juniper Networks (Nasdaq: JNPR), Hewlett-Packard (NYSE: HPQ), and China's Huawei Tech. But the company was forced to admit that it will still only grow earnings about 7% to 9% per year, at best.

Chambers of horrors!
Investors reacted curiously to Cisco's admission. Perhaps encouraged by CEO John Chambers' declaration of war against the competition, or perhaps pleased that the bad news wasn't as bad as it might have been, investors bid Cisco shares up yesterday. But is that the right call?

Right now, Cisco shares sell for 14 times earnings and pay a 1.5% dividend. That's about the same P/E you'll find at a rival like Alcatel-Lucent (NYSE: ALU), and cheaper than what Mr. Market charges for shares of Riverbed (Nasdaq: RVBD) or F5 Networks (Nasdaq: FFIV). Still, it seems a bit rich for the 9% grower Cisco says it's now become. On the other hand, though, earnings aren't the whole story at Cisco. In fact, according to the company's cash flow statement, the $8.9 billion in real free cash flow that Cisco generated over the past year eclipses reported "net earnings" by 37%. Net out Cisco's cash stash, and value the company as an "enterprise," and a share of Cisco really only costs you about seven times free cash flow today.

In other words, if Cisco only hits the low range of its guidance, growing 7% per year over the next several years, the stock looks to be fairly priced today. If, on the other hand, Cisco hits the 9% high end of its ratcheted-back expectations, the stock could actually be a bargain.

Are investors right to be betting on Cisco's resurgence? Add it to your Fool Watchlist and find out.

Fool contributor Rich Smith does not own shares of any company named above. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Riverbed Technology and Cisco Systems, as well as writing puts in Riverbed Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.