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Cybersecurity Play Arista Networks Looks More Attractive After Its Share Split

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Launched in 2008, Arista Networks (NYSE:ANET) provides data-driven, client-to-cloud networking services for large data centers, as well as campus and routing environments. The company went public in June 2014, and you may have heard about the recent, huge decline of ANET stock.

Image of Arista Networks (ANET) logo on the side of a building
Image of Arista Networks (ANET) logo on the side of a building

Source: Sundry Photography / Shutterstock.com

There’s no need to worry; the tumble was not caused by investors dumping their shares. Rather, it was triggered by a split of the stock. That development could actually make Arista more enticing to investors and traders.

We’ll certainly delve into the details of the stock split, but there’s a bigger story to be told here. Specifically, Arista Networks has been generating strong revenue growth – and there’s fresh data to prove this point.

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Not only that, but the company was just inducted into an elite association of security-software vendors. That represents another big win for Arista, and by extension, for the company’s shareholders.

A Closer Look at ANET Stock

In 2021 so far, Arista’s loyal investors have enjoyed steady gains. The stock started the year at $70, but was already threatening to break above $100 by the summer.

Then a swift run-up occurred in early November as ANET stock jumped to $130. Now value-focused investors might wonder whether the stock is too expensive. So let’s check a commonly used valuation metric.

Currently, Arista Networks’ trailing 12-month price-earnings ratio is 51.88. That’s not the highest P/E ratio in the world, but it’s somewhat elevated. Still, a high P/E ratio can be justified when a company is rapidly growing its revenues, and I’ll definitely investigate this matter.

One more important note about ANET stock: the company recently enacted a one-for-four share split. How does this make the stock more alluring to prospective shareholders?

As InvestorPlace contributor Shrey Dua explains, “In the short term, Arista is more appetizing to investors. At just one quarter” of its previous price, “Arista can once again entice new investors to the stock.

Overcoming a Challenging Environment

Again, even a somewhat lofty P/E ratio can be fine when a company is posting strong revenue growth. Fortunately, that appears to be the case with Arista Networks.

Not long ago, the company released its third-quarter 2021 financial results. As it turns out, Arista’s revenues totaled $748.7 million, resulting in a quarter-over-quarter increase of 5.8%.

Even better, its top line soared 23.7% YOY. We should also observe that Arista Networks reported GAAP net income of $224.3 million during Q3.

That’s a considerable improvement over the $168.4 million of GAAP net income that it recorded in Q3 of 2020. Arista Networks President and CEO Jayshree Ullal explained that the company’s quarterly results were impressive, especially considering a particular obstacle which many tech firms had to overcome.

“Despite a challenging supply chain environment, I am pleased with our delivery of another record quarter of Arista’s financial results in Q3 2021,” Ullal stated.

An Honor From a Technology Giant

In the 2020s, cybersecurity has become a priority for many businesses. The companies in this niche should work together to build up their communities, while helping to keep their clients safe and secure.

There’s actually an association which addresses these specific needs. But not all companies can join it. Just recently, Arista Networks was invited to join the group, which is led by Microsoft (NASDAQ:MSFT) and known as the Microsoft Intelligent Security Association (MISA).

MISA can simply be described as an ecosystem of independent software vendors and managed security service providers. However, there’s a community-service aspect to MISA as well, as the association seeks to integrate its members’ solutions to better defend against a world of increasing threats.

Arista was nominated to join MISA because Arista’s NDR (Network Detection and Response) platform and Microsoft Azure Sentinel have been linked.

The invitation is a major honor for Arista Networks, and it solidifies the company’s relations with Microsoft while also placing Arista into an elite class of cybersecurity-service providers.

The Bottom Line

The share split should make ANET stock more enticing for prospective investors. Yet that’s not the only reason to take a position in the stock.

As Arista Networks continues to generate strong revenue growth and maintain close ties with Microsoft, it’s easy to buy and hold the shares with confidence.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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