The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( StreetAuthority) -- The world economy may be struggling to recover from the depths of the Great Recession, but there are still pockets of the market that are seeing explosive growth. Demand for electronic gadgets held up amazingly well during the credit crisis, which suggests consumers consider their smartphone or tablet computer necessities along with food and shelter. In fact, the housing bust demonstrated that shelter isn't worth all that much these days.
Even through the minor hiccup to its operations, annual revenue grew 8% last year. Analysts expect similar levels of growth over the next couple of years, and nearly $50 billion in sales by 2013. They also project earnings of about $2 per share, which translates into growth of more than 70% from the $1.17 reported for all of 2011. Cisco is already a prodigious generator of excess capital. Last year, it generated nearly $10 billion in free cash flow, or $1.76 per diluted share. This represented a cash flow margin of 23.1%, which is well above the market average of around 14%. Overall, Cisco operates in one of the most appealing markets in the world and should garner more than its fair share of future industry growth. It controls roughly 60% of the switch market and also possesses a leading share of routers. With Internet traffic conservatively expected to grow at least 50% a year for the foreseeable future, there is plenty of growth potential for most of Cisco's operations. Risks to Consider: Cisco has managed to maintain its leading market share, but competitors such as Juniper Networks ( JNPR) continue to nip at its heels. Cisco was at risk of losing significant share last year, but managed to innovate and also reduce selling costs. This helped it maintain its customer base. Action to Take --> Cisco is profitable, growing, operates in a hugely appealing space in the technology industry, and also happens to be very reasonably valued. It trades at a forward price-to-earnings ratio of less than 11. To put this into context, Cisco's average P/E during the past five years has been 17.7 and the market average is currently 15.5. Growth and momentum investors no longer seem to be interested in Cisco because it is no longer growing more than 20% a year like it was back during the dot-com bubble. And though it now pays a dividend yield of 1.6%, it still hasn't caught the eye of income and more conservative investors (although that could change as the company announced future dividend increases). For now, I'll call it "growth-at-a-reasonable-price" stock, and I think now is a great time to invest. At a minimum, I think Cisco can trade up to the market P/E (15.5), which when multiplied by earnings expectations of $1.84 per share, suggests a stock price of $28.50 (15.5 times $1.84), That's about 40% ahead of the current share price. Ryan Fuhrmann does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of CSCO in one or more if its "real money" portfolios. Also see:
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