Can Cisco Systems Stock See a Turnaround?

With shares of Cisco Systems (NASDAQ:CSCO) trading around $20, is CSCO an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Cisco Systems designs, manufactures, and sells Internet protocol-based networking and other products related to communications, and provides services associated with these products and their use to information technology industries worldwide. The company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate, and collaborate. Cisco operates in five segments: United States and Canada, European markets, emerging markets, Asia Pacific, and Japan.

Cisco Systems has cut its long-term forecast for both earnings and revenue amid a myriad of problems. The announcement was made at an analyst meeting on Thursday, Reuters reports. Cisco executives cut the company’s revenue growth prospects in the next three to five years from 5 to 7 percent to between 3 and 6 percent. The company said it expects its core network equipment business to stay flat during that time frame. Cisco hopes that increases in software, services, and security products will offset the drop in network equipment.

T = Technicals on the Stock Chart Are Weak

Cisco Systems stock has seen a consistent downtrend in recent quarters. The stock is currently pulling back. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Cisco Systems is trading below its rising key averages, which signals neutral to bearish price action in the near term.


Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Cisco Systems options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Cisco Systems options




What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

January Options



February Options



As of Friday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Cisco Systems’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Cisco Systems look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Cisco Systems has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been displeased with Cisco Systems’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Cisco Systems stock done relative to its peers – HP (NYSE:HPQ), Alcatel-Lucent (NYSE:ALU), Juniper Networks (NYSE:JNPR) — and sector?

Cisco Systems



Juniper Networks


Year-to-Date Return






Cisco Systems has been a poor relative performer, year-to-date.


Cisco is a provider of  networking solutions to companies and consumers worldwide. The company has cut its long-term forecast for both earnings and revenue amid a myriad of problems. The stock has seen a consistent downtrend in recent quarters and has been pulling back lately. Over the last four quarters, earnings and revenue figures have been increasing. However, investors in the company aren’t too happy with recent earnings announcements. Relative to its peers and sector, Cisco has been a poor year-to-date performer. WAIT AND SEE what Cisco does in coming quarters.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.