Networking market suffers growing pains
By Wylie Wong
Staff Writer, CNET News.com
March 24, 1999, 4:45 p.m. PT
The networking market continues to grow, but at a much slower pace than in past years, a new study shows.
Sales of networking equipment--led by Cisco Systems--grew 17.7 percent in 1998, from $26.8 billion to $31.5 billion, according
to analyst firm Cahners In-Stat Group. That's a far cry, however, from growth numbers in 1996, when the industry watched its
sales surge by 48 percent for the year.
Industry growth rates should continue to slow, according to the report. Cahners In-Stat analyst Mike Wolf predicts sales growth
of 15.5 percent to $36.4 billion in 1999 as companies, faced with the costs of the Year 2000 bug, delay equipment purchases.
Additionally, growth rates usually decline as a market matures, Wolf said.
"As a market gets bigger, you have smaller growth rates because you're growing from a bigger base," he said. "If it's a $36
million pie, it's harder to grow 50 percent. You'd have to grow almost $20 million."
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Based on this, CSCO is growing much slower than a few years ago, but its current PE of 100+ is much higher compared to the avearge of last two years, that was around 60. Simple calcualation would say that as CSCO growth rate is much slower compared to the last two years its PE should in fact be less than 60. So, if one gives CSCO a PE that corresponds to the growth rate of 17.7% its PE should be around 40 only. Based on current earnings, the stock price that realistically reflects this growth rate based PE is around 40$ only. Based on this calculation, CSCO is way way overpriced. all imo.
Not a good entry point considering what's happenning in Kosovo, Crude oil quotas, and potential negative earnings surprises in April. The potential of a large dip is possible in April. Again, all imo. |
