Cisco Stands Strong, but the Stock Stumbles

"Good enough" really is good enough sometimes. Other times, it just isn't.

Cisco Systems (NAS: CSCO) is feeling the "isn't" effect right now. The networking colossus just posted third-quarter sales and earnings right in line with Wall Street's estimates, yet share prices fell slightly more than 8% in after-hours trading.

Revenue jumped 6.6% year over year to $11.6 billion, while non-GAAP earnings gained 14% to land at $0.48 per share. One troubling detail can be found on the cash-flow statement, where operating cash stayed flat at $3.0 billion. We Fools tend to prefer companies pocketing real cash rather than the accounting artifact known as earnings. Given a choice, I'd like to see cash flows outgrowing earnings every time. But that's not what we got here.

Cisco CEO John Chambers is pleased as punch with these results anyhow. "We are successfully executing against our long-term strategic plan of growing profit faster than revenue," he said, characterizing the report as "solid." And not without reason: Sales did clock in at the very top of the guidance given three months ago, and the original earnings forecast topped out at $0.47 per share, so that's another case of beating official targets.

Chambers also waxed poetic over the way Cisco is outperforming the competition, and that's also mostly true. Sales are shrinking at Juniper Networks (NAS: JNPR) , JDSU Uniphase (NAS: JDSU) , and Alcatel Lucent (NYS: ALU) while Cisco's are growing, albeit modestly. Economies of scale kick in on this rarefied level and Cisco turns a profit much more predictably than any of its major rivals.

If the after-hours prices hold steady, Cisco now trades at a valuation not seen since last October. The lack of cash-flow growth is a real red flag, and other minor ones do exist, but this really was a pretty respectable report on the whole. Opportunistic Fools could grab this opportunity to build a position in this high-quality stock. At the very least, do yourself a favor and start a CAPScall on Cisco today. My own bullish vote stays firmly in place.

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At the time thisarticle was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Cisco Systems.Motley Fool newsletter serviceshave recommended writing naked calls on JDS Uniphase. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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