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Cisco Methods (CSCO) : Classes from the Dot-Com Bubble


Sep 2, 2022

In March 2000, Cisco Methods (CSCO) reached an all time excessive of $82/share. It grew to become the most important firm on the planet, with a market capitalization of round half a trillion {dollars}. It was additionally the most important firm within the Nasdaq 100.

Traders have been excited concerning the progress prospects of New Financial system firms. Consequently, they have been keen to overpay massively for his or her progress prospects.

Within the case of Cisco Methods, the corporate had gone public in 1990. It offered for about 20 – 30 occasions earnings in 1990. The corporate then managed to develop earnings per share 150 fold since its IPO in 1990. Consequently, the inventory had a excessive complete return fueled by that + valuation growth in Nineteen Nineties.

Traders presumably anticipated a excessive future progress. Nevertheless, assigning a $450 billion market valuation was a tad optimistic in hindsight. We now know that bushes don’t develop to the sky.

Nevertheless it appears to be like like buyers in March 2020 didn’t know this lesson, but:

Within the case of Cisco (CSCO) buyers assigned a $450 billion valuation in 2000 on an organization that earned $2 Billion in 1999 and $2.7 billion in 2000.

Cisco simply reported a internet earnings of $11.8 Billion for 2022.

On a per/share foundation, issues appear to be this:

Cisco Methods (CSCO) has managed to develop earnings per share from $0.30 in 1999 to $2.82 in 2022.

The inventory has didn’t exceed the file ranges from the dot-com bubble regardless of a 7 fold improve in earnings per share since 2000. Traders generated a complete return of 29% because the finish of 1999

That is as a result of the inventory was promoting for 165 occasions earnings in 2000.

The Lesson is that: Overpaying for future progress is dear to funding returns

That is the overall returns chart since 1/1/2000:

About 22 years later, he is nonetheless going sturdy nonetheless.

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