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Berkshire Hathaway Inc. (BRK.A), Cisco Systems, Inc. (CSCO): Warren Buffett Is Not a Myth

This couldn’t be further from the truth. Since the end of fiscal 2003 through the end of fiscal 2012 Cisco Systems, Inc. (NASDAQ:CSCO) has increased revenue at an annualized rate of 10.4% while increasing EPS at an even faster rate of 12.9% annually. So why did the stock do nothing? Because it was outrageously overpriced 10 years ago. EPS in fiscal 2003 was just $0.50, yet the stock traded as high as $25 per share towards the end of the year. That’s a P/E ratio of 50.

Today, the story has changed. Cisco Systems, Inc. (NASDAQ:CSCO) has not only increased its earnings but also built up an enormous pile of cash. Adjusting for that cash the current P/E ratio is just 10.4 using TTM numbers. Cisco Systems, Inc. (NASDAQ:CSCO) stock has spent the last decade trying to justify its valuation, and now the stock is far less expensive than it was a decade ago. There is no reason to believe that the stock will continue to do nothing.

The bottom line

Choosing a starting point when a stock was clearly overvalued can skew the results dramatically. Had the author chosen a 20 year window instead of a 15 year window his results would have been exactly the opposite. Now, you can certainly argue that Berkshire Hathaway Inc. (NYSE:BRK.A) has slowed down as it has grown, but claiming that Buffett is more myth than legend based on an arbitrary time period is sloppy at best and deceptive at worst.

The article Warren Buffett Is Not a Myth originally appeared on and is written by Timothy Green.

Timothy Green owns shares of Cisco Systems (NASDAQ:CSCO). The Motley Fool recommends Berkshire Hathaway and Cisco Systems. The Motley Fool owns shares of Berkshire Hathaway. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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