Cisco's stock took a harsh beating after the company reined in its outlook for the rest of the year.
"The first thought was ouch," said Alex Henderson, analyst at Miller Tabak & Co. "Now the question is whether there's something fundamentally wrong with Cisco's business or whether this is just a temporary air pocket that will resolve itself over six months, in which case the stock has been oversold."
Henderson says there are a number of challenges ahead for Cisco, as some of the sectors of the economy that the company relies on for growth, including state and local governments and cable providers, remain under duress.
But Henderson said Cisco's cloud computing strategy gives the firm a chance to rise from the ashes in the second half of its fiscal year.
"Cisco needs to demonstrate that there's a turnaround ahead," Henderson said. "If the company's full-year guidance implies a strong rebound in orders and revenue, that could help push the stock back toward $25 per share, making it a clear buying opportunity."
But another stumble by Cisco and another tepid forecast from CEO John Chambers could put pressure on the stock.
"We're in the camp that believes that this is just a temporary air pocket, but at the same time, we're not aggressively pounding the table to push investors to step up to the plate," Henderson said. "The stock is dead in the water, and we can wait it out until we get a clearer picture."
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