Every stock needs a catalyst to rally. But without proper growth drivers - fundamentals alone (Strong Balance Sheet + Low PE + Huge Cash on books + Attractive dividend yield) cannot save the stock.
Here's Cisco Fact Sheet for you:
- Cisco Market Cap: $150 bn
- Cisco Cash on Books: $70 bn.
- Cisco Forward PE: $12.
- Cisco generates $12 billion Free Cash Flow annually and distributes huge dividend and does buyback.
- Cisco Dividend Yield - 3.6%.
Now Look at the Chart -
Cisco stock broke out last year above 29 but stock has done nothing major since last 12 months.
Here's Why? Cisco's revenue fell 4% year-over-year last quarter, and this is now seventh-straight quarter of year-over-year declines. This trend is likely to continue as Cisco transition it's business to new growth area of Wireless networking and Security. Now Cisco has strong fundamental base to make this transition happen but that's not enough for stock to make a move on its own in near term and that's going to be painful for existing investors
Another example: General Motors
General Motors trading at a PE of less than 6 + Dividend Yield of 4% with $18 billion of cash on the books and market cap of $48 bn pic.twitter.com/0eRz8WAsmG
— Deepak Singh (@smarket) August 19, 2017
Lesson for the day: What investors and market participants are always interested in: Growth prospect. A sound fundamental is necessary but not sufficient to generate huge returns
Recommended Reading: The PE that counts
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers