Cisco Disappoints Investors… Again!February 10 | Posted by Kevin Monaghan | Inside Trader Highlights
Shares of Cisco (CSCO) are trading lower after the bell after they announced earnings on Wednesday evening. One of the biggest disappointments was that gross margins fell 62.4%. The company cited increased spending on new projects and research as one of the main reasons for the lower margins. Not necessarily a bad thing, but not what investors wanted to hear after last quarter’s disappointment.
The shares ended the day at $22.04, but are trading closer to $20.00 in the after-hours trade. Investors are wondering whether the company can continue to grow its earnings and maintain its margins now that there are smaller, hungrier competitors that are more nimble. After the last earnings report, shares of Cisco fell below $20 before recovering. This time we feel that Cisco’s stock price needs to fall even further for us to even consider picking up shares.
Cisco is a leader in routers and switches which the internet, corporate networks, phone and web service providers depend on in order to allow us to surf the web. The company should be poised for growth as users are eating up data at an exponential pace. However, Cisco is falling into the category of unloved stocks such as Microsoft (MSFT), Johnson & Johnson (JNJ), or Pfizer (PFE). These stocks have seen their share prices stagnate over the past decade, despite higher revenues and dividend payouts. Cisco is planning on initiating a dividend payment later this year.
A few years ago the Dow Jones Industrial Average decided to include Cisco as one of its 30 components. It had beat out another tech company for the position: Apple (AAPL). It would have been interesting to see where the DJIA would be trading today if that hadn’t happened.
Disclosure: Author, Kevin D. Monaghan, Senior Account Executive at Elite Investment Group is long AAPL, JNJ