Cisco Systems Breaks Long-Term Downtrend Line

Cisco Systems, Inc. CSCO shares have broken out of a long-term downtrend in the last two weeks and have continued on to the upside. However, the stock is now trading just below the first of two important resistance levels and is simultaneously sporting overbought readings.

Can the stock continue at its current trajectory? What, if anything, is going on fundamentally with the company that may give the stock a chance to continue higher?

What The Bulls See

• Some reasonable valuation metrics: A price-to-book ratio of 2.47 and a price-to-sales ratio of 2.96.
• Net profit margins of 16.25 percent that spin-off $9.41 billion in positive levered free cash flow annually.
• An attractive balance sheet: Total cash of $52 billion vs. $21 billion in total debt, a debt-to-equity ratio of 36.98 percent and a current ratio of 3.31.
• An attractive 2.7 percent dividend yield.

What The Bears See

• Some rich valuation metrics: A market capitalization of $141.34 billion that trumps the enterprise value of $110.20 billion and a PE of 13, which seems expensive compared to estimated 2015 revenue and EPS growth of 4.2 percent and 4.7 percent, respectively.

The Technical Take

Technicians note that Cisco Systems shares have broken out of a long-term downtrend in the last couple of weeks. The stock is bumping into the horizontal line resistance created by the 2010 peak at $27.74. Technicians further note that the stock appears to be in a macro "abc" upside correction –- in the most bearish case –- with resistance at $29.02. Support comes in at the broken downtrend line at  around $25.91.