Cisco Systems (NASDAQ:CSCO) stock performs better than its underlying earnings growth over last three years
Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. That’s what has happened with the Cisco Systems, Inc. (NASDAQ:CSCO) share price. It’s up 15% over three years, but that is below the market return. Unfortunately, the share price has fallen 11% over twelve months.
Since it’s been a strong week for Cisco Systems shareholders, let’s have a look at trend of the longer term fundamentals.
See our latest analysis for Cisco Systems
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During three years of share price growth, Cisco Systems achieved compound earnings per share growth of 2.1% per year. In comparison, the 5% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Cisco Systems’ earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Cisco Systems’ TSR for the last 3 years was 27%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Cisco Systems shareholders are down 8.3% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 6.7%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Longer term investors wouldn’t be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Is Cisco Systems cheap compared to other companies? These 3 valuation measures might help you decide.
Of course Cisco Systems may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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