Why I Own Arista Networks Stock

Arista Networks (NYSE: ANET) is a market leader in software-driven cloud networking solutions for large data center and cloud computing companies. The company offers a wide variety of Gigabit Ethernet switches that significantly improve the price and performance equation of data center networks.

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Source: Investor Presentation

Demand for cloud connectivity is booming, and Arista is doing a sound job in terms of translating its growth opportunities into growing sales and earnings for investors. In the past five years alone, the company has increased revenue by more than 400%, with both operating income and earnings per share increasing well above 700%.

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Data by YCharts

Arista Is Driven By Strong Momentum

Arista reported earnings for the fourth quarter of 2018 on February 14, and performance was quite solid across the board. Market's reaction to the earnings announcement was clearly strong, with the stock jumping by 9.6% after the news hit the wires.

Revenue during the full-year 2018 amounted to $2.15 billion, an increase of 30.7% versus 2017. Adjusted earnings per share reached $7.96 during the period, a vigorous increase of 35% year over year. Both revenue and earnings surpassed expectations in the fourth quarter, and this is a major positive for investors in Arista Networks.

The company tends to consistently deliver financial performance above expectations, which can be a powerful upside fuel for the stock. Successful investing is not just about investing in companies that are doing well, but those companies that are doing better than expected can be the most profitable ideas in the market.

In other words, current market prices are reflecting a particular set of expectations for a company. When the company delivers earnings numbers above expectations, chances are that the stock price will tend to rise in order to reflect the upward adjustment in expectations going forward.

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Disclosure: I am/we are long ANET. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business ...

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