Arista Networks Down 30%: Buying Opportunity?

Wall Street analysts have consistently been running from behind when it comes to Arista and its earnings power. The chart below shoes how earnings expectations for both the current year and the next fiscal year have substantially increased over time.

Chart

ANET EPS Estimates for Current Fiscal Year data by YCharts

As long as this trend remains in place, Arista could be even more undervalued than what the numbers indicate if the company continues delivering earnings above expectations in the years ahead.

The PowerFactors system is a quantitative investing system available to members in my research service, "The Data Driven Investor." This system basically ranks companies in a particular universe according to quantitative indicators such as financial quality, valuation, fundamental momentum, and relative strength.

The system has produced solid performance over the long term. The chart below shows the annualized returns for companies in different PowerFactors ranking buckets since January of 1999 in comparison to the SPDR S&P 500.

There is clearly a direct relationship between the PowerFactors ranking and annualized returns, meaning that companies with higher rankings tend to produce superior returns and vice versa. In addition, stocks with relatively high quantitative rankings tend to materially outperform the market over the years.

Data from S&P Global via Portfolio123

Arista Networks is among the best 10% of stocks in the market based on the quantitative algorithm. The company has a PowerFactors ranking of 93.7, which means that the stock is well positioned for attractive returns when considering financial quality, valuation, fundamental momentum, and relative strength.

The quantitative system alone does not tell you the whole story - it's important to understand the business behind the numbers in order to truly understand the main risks and return drivers in Arista's stock.

Arista operates in a high-growth industry prone to technological disruption. It's important for investors to monitor the competitive landscape in order to make sure that the company remains strategically well-positioned for growth and market share gains in the years ahead.

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Disclosure: I am/we are long AMZN, ANET.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business ...

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