Today we're going to take a closer look at large-cap Telecommunications company Cisco Systems, whose shares are currently trading at $50.16. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, Cisco Systems has a trailing 12 month P/E ratio of 18.4 and a P/B ratio of 5.0.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
Cisco Systems's PEG ratio is 1.84, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
