Like the general markets, shares of Cisco (NASDAQ:CSCO) have had a difficult 2022. Due to Cisco’s weak fundamentals, experts have revised their estimates downward for the company’s earnings and revenues.
Estimates for 2022, 2023, and 2024 are all well below their peak levels and may have just begun to bottom out. It won’t be known if estimates have decreased further until the corporation releases its fiscal fourth quarter results in the middle of August.
The stock and PE ratio has fallen due to the dim business outlook. The stock seems inexpensive, given several factors. The company trades significantly below its five-year historical PE ratio by more than one standard deviation. The one-year forward PE ratio at present is 12.27, which is lower than the average of 15.31. The stock trades at a discount compared to the S&P 500 IT sector and the S&P 500.
Fourth Quarter Results
Of course, when the corporation reports the results, that will be the only thing that matters. Results for the fourth quarter of the current fiscal year are predicted to be very poor, with earnings falling by 3% to $0.82 per share and revenues falling by 3% to $12.73 billion. Gross margins are expected to drop from 65.6 % to 64.7 %, a 1% fall from a year earlier.
Betting Shares Increase
Someone is counting on Cisco to turn things around because the stock price already includes forecasts for a lousy quarter. On July 19, the open interest for the $40 puts and calls expiring on August 19 increased by around 11,500 contracts apiece. According to the statistics, this transaction was a spread, with the trader paying $3.89 per contract for the calls and getting $0.71 for each contract of puts. The trader’s optimistic wager cost $3.18 per contract. It would imply that by the middle of August, Cisco’s stock is trading at over $43.18.
Additionally, on July 18, 10,500 more contracts were added to the open interest for the identical pair of options. According to the statistics, a straddle was formed by buying the $40 August 19 calls for $3.81 and the $40 put contracts for $0.84. The trader here is placing a wager on whether the stock will close at a price above $44.65 or below $35.35 by expiration.
Emerging bullish trend
Following the release of the company’s third-quarter earnings, shares of Cisco dropped precipitously, generating a gap between $48.5 and $43.90. When stocks fall precipitously, and gaps appear, they typically get filled over time. There would be no opposition to stopping the stock from filling the gap back to $48.5 now that the shares have pushed over resistance near $44.
Furthermore, momentum may be returning to a bullish direction. Now, the relative strength index is moving upward. Additionally, it climbed above a sizeable resistance area at 52. It would appear that momentum has changed from bearish to bullish now that the RSI has risen over the 52 levels, signifying bullish momentum in the strong.
Although Cisco may not be the most intriguing brand, the technicals and options indicate there may still be room for a rally in the upcoming weeks. Even though earnings are still roughly a month away, since estimates have already been significantly reduced, this equity may deliver a favorable report given the low expectations.
Featured Image: Megapixl © Arwiyada
