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Investors tempted by


(CSCO) - Get Cisco Systems Inc. Report

lowest price-to-earnings ratio this decade and Chief Executive Officer John Chambers' promise to cut $1 billion in costs ought to know the technology company may not be such a bargain after all.

Analysts' consensus estimate is for Cisco's most recent fiscal earnings per share of $1.31 to fall to $1.25 this year and decline further to $1.20 in 2010. The firm reports on a July fiscal year. As a result, the company's P/E ratio, which is less than its smaller and weaker peers, jumps above 12 when next year's consensus is calculated.

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With the downturn in capital spending hitting information-technology budgets, a reversal in Cisco's earnings isn't likely until the economy reverses direction. Cisco's sales fell for the first time in five years last quarter on slowing demand for network gear that businesses use to direct Internet traffic. The company is the largest U.S. maker of switches and routers.

In March 2000, during the tech-stock frenzy, Cisco's shares closed higher than $80 before collapsing to $10 in the subsequent crash. It recovered to the low $30s in 2007 and has fallen lower, fluctuating in the mid-teens this year.

Chambers may take advantage of depressed valuations of tech stocks to Cisco's advantage. Cisco's balance sheet is bulging with $30 billion in cash and equivalents that Chambers could use to pick up one or more acquisitions at depressed prices. Ratings evaluation model, which quantitatively analyzes a company's valuation metrics, current financial situation and analysts' consensus expectations of future growth, awards Cisco an overall grade of C, which equates with a "hold" recommendation. Holding back its overall ratings is a "risk grade" of D-plus.

Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.