[1] Market Valuation: At P/EBIT of 25.1, AKAM is trading at a more expensive price compared to 18.0 for CSCO
Market ValuationAkamaiCiscovs CiscoAs of 10/20/2021 Price To Sales Ratio (P/S)5.24.7More ExpensivePrice To OpInc Ratio (P/EBIT)25.118More ExpensivePrice To Earnings Ratio (PE)29.922.2More Expensive
[2] Growth & Profits: Considering the valuation, the market appears to be rewarding AKAM's higher growth and demonstrated profit generation ability - AKAM has demonstrated better revenue growth: 8.7% annually in last 3 FY, 9.7% LTM, 7.3% last Q (yoy), and 1.2% last Q (qoq) - In comparison, CSCO has grown at 0.4%, 1.0%, 8.0%, and 2.5% respectively, during the same periods - If we look at profitability, the distinction between the two is not very clear: For AKAM, 20.6% margin, 5.7% margin expansion, and 39.6% cash flow - The corresponding values for CSCO stand at 27.3%, -1.4%, and 31%
Growth & ProfitAkamaiCiscovs Cisco As of 10/20/2021 Revenue GrowthLast Q Growth (QoQ)1.2%2.5%Growing SlowerLast Q Growth (YoY)7.3%8%Growing SimilarLTM Growth9.7%1%Growing FasterLast 3 Fiscal Year CAGR8.7%0.3%Growing Faster ProfitabilityLTM OpInc Margin21%26%Less ProfitableLast 3 Fiscal Year OpInc Margin Change7.2%-3.6%More ImprovementLTM FCF Margin40%31%Higher Cash Flow %
[3] Financial Risk: Then, is the market ignoring risk to AKAM? Unlikely as the company does not appear to be at higher risk vs CSCO - CSCO has a better debt position, with debt as % of equity of 4.9% vs 11.0% for AKAM - AKAM has more cash cushion, with cash as % of assets of 32.6% vs 25.1% for CSCO
Financial RiskAkamaiCiscovs Cisco As of 10/20/2021Debt as % of Equity11%4.9%Higher Debt LoadCash as % of Assets33%25%Better Cash Position
[4] Market Returns: AKAM is expensive but has higher growth and no extra risk; Appears to be a reasonable choice but what about market returns? - AKAM has higher average annualized return of 13.9% vs 9.9% for CSCO based on key market periods - These key market periods include, year-to-date, pre-covid to now, and 1, 2, and 3 years prior to covid
MetricsCSCOAKAM Recent Returns YTD24.6%2.8%LTM41.8%-1.4%Pre-Covid To Now39.6%24.7% Last 3 Years Returns21.3%64.3%Sharpe Ratio0.350.44Max Drawdown-26.8%-10.2%
Notes:
[1] Q = quarter, LTM = last twelve months, FY = fiscal years, yoy = year-on-year, qoq = quarter-on-quarter
[2] Revenue growth decision is made by giving more weightage to long-term revenue growth (3-year average) and lesser weightage to quarterly growths
[3] Margin mentioned is average of last Q, LTM, and last 3 FY; margin increase is average of increase in last Q vs LTM and increase in last Q vs 3-FY average