Cisco Stock Down 7% Today – Time to Buy CSCO Stock?

The price of Cisco stock is dropping nearly 7% today in pre-market stock trading action following the release of the firm’s financial results covering the first quarter of the 2022 fiscal year as guidance came below the market’s expectations while the company highlighted multiple supply-chain-related struggles.

Cisco sales came in at $12.9 million for the three months ended on 30 October compared to $11.9 million the firm reported during the same period a year ago while slightly below Wall Street’s forecast of $12.98 billion for the period.

Meanwhile, adjusted gross margins declined 130 basis points to 64.5% while the firm’s non-GAAP operating margin improved 60 basis points at 33.3%.

Cisco reported non-GAAP earnings per share of $0.82 per share for the quarter compared to $0.76 it reported a year ago. The figure was 2 cents higher than the Street’s consensus of $0.80 for the period.

Moving forward, the management shared EPS guidance of $3.38 to $3.45 for the upcoming 2022 fiscal year compared to $3.42 analysts had forecasted for the telecom giant while revenues are expected to land at around $53.3 billion compared to $52.87 billion Wall Street was expecting for the year.

Even though these results were not necessarily bad, downbeat comments from the management in regards to the firm’s struggles to navigate the troubled waters of the current supply chain crisis are weighing on the stock price today.

In this regard, Cisco’s top management cited that more and more components are being transported by air and this increases logistics costs and could possibly drive gross margins lower in the next few quarters.

Moreover, they cited that some of these issues may continue to affect the business’s performance until the second half of 2022.

What can be expected from Cisco stock in the following quarters based on what the company has shared today? Join me in this article as I attempt to outline plausible scenarios for the future upon assessing the price action and fundamentals of CSCO stock.

67% of all retail investor accounts lose money when trading CFDs with this provider.

Cisco Stock – Technical Analysis

Today’s pre-market decline is pushing the price of Cisco stock to the base of the descending triangle highlighted in the chart. This area should be considered today’s key support as the session advances.

This decline would push Cisco stock below its short-term moving averages as long as it spills over to the live session as is and it is also resulting in a tag of the stock’s 200-day simple moving average.

The confluence between the support line mentioned above and this important mid-term moving average makes today’s drop a major event from a technical perspective and investors should keep an eye on how things play out in the following days as a break below this area could lead to the beginning of a downtrend for CSCO stock.

Momentum oscillators were experiencing a mild decline ahead of today’s earnings release as the Relative Strength Index (RSI) dropped near the 50 level while the MACD made a turn below the signal line on the back of steadily decreasing positive histogram readings.

All things considered, if a break below the $53 level occurs chances are that CSCO stock may experience a sustained decline in the following weeks catalyzed by the management’s downbeat comments about the firm’s supply chain situation.

Cisco Stock – Fundamental Analysis

Based on the latest performance of Cisco sales in the past few years, the management’s expected 5% to 7% revenue increase is quite encouraging and highlights the firm’s potentially successful pivot toward new technologies and away from its legacy solutions.

Meanwhile, the company has managed to maintain its gross margins above the 60% in the past 10 years and should continue to in the future despite the challenges it is facing amid the current supply bottlenecks.

Overall, even though the management’s comments today are, to some extent, a sign of the times, these headwinds are mostly temporary. In contrast, last year’s results from Cisco and its guidance for the 2022 fiscal year are positive news and could be hinting at a brighter future ahead for the company.

At its pre-market price of $53.4 per share, Cisco would be trading at only 15 times its forecasted earnings for 2022 while its dividend yield stands at 2.8%. For a company that is expecting to see its adjusted EPS jump by nearly 20% in the next twelve months, this P/E multiple seems attractive and could create room for upside potential down the road once the current supply chain crisis is solved.

Overall, even though the short-term outlook is relatively bearish, the mid-term and long-term outlook for the company is quite positive based on early signs of a successful turnaround.

Buy CSCO Stock at eToro with 0% Commission Now!