(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Cisco Systems Inc. (CSCO) bulls are forecasting major stock gains—but they may stumble badly. Analysts are forecasting the networking company's stock will increase by more than 13%., but that optimism may prove unfounded for a company that's struggling to grow earnings. 

Cisco's stock has risen by over 36% in the past year, more than double the S&P 500's rise. Shares are already beginning to falter, down by over 6% since the start of May. The stock fell sharply after reporting inline quarterly results and guidance that were not enough to please bullish investors. The technical chart is also weak and suggests shares may drop by about 10%. 

Analyst's Lofty Expectations

Cisco's profits are the main reason for caution. Earnings growth is expected to rise by 12% in fiscal 2019, and then slow to 9% in 2020. Meanwhile, revenue is also expected to slow to just 3% for both 2019 and 2020. 

CSCO Annual EPS Estimates Chart

Not Cheap

What may be deceiving is the company's fiscal 2020 P/E ratio of around 13.5, which is ostensibly cheap. But comparing that valuation measure to its historical range, one finds that it is on the high side. From the summer of 2014 until the start of 2018, the valuation never went above 13.8, trading in a range of 9.9 to 13.75. Additionally, when adjusting the P/E multiple for growth, Cisco trades with a PEG ratio of about 1.5. Should shares go up to the average analyst price target of $49, the multiple would rise to nearly 15.5. 

Fundamental Chart Chart

Weak Technical Chart

Another warning sign for the stock may be its bearish technical setup. The stock broke a critical technical uptrend starting in November 2017. Currently, shares are holding firm around $43.25. But the relative strength index continues to trend lower and that would suggest bullish momentum is still coming out of the stock. Should Cisco fall further, its next level of technical support comes about 10% lower at roughly $38.90. 

Cisco's stock faces two key headwinds from a fundamental and technical standpoint. To shift away from the bearish momentum, the company will need to do a better job of topping investors’ expectations in the coming quarters. 

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.