We think that it’s fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. You won’t get it right every time, but when you do, the returns can be truly splendid. One bright shining star stock has been Arista Networks, Inc. (NYSE:ANET), which is 394% higher than three years ago. On top of that, the share price is up 25% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During three years of share price growth, Arista Networks achieved compound earnings per share growth of 34% per year. This EPS growth is lower than the 70% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That’s not necessarily surprising considering the three-year track record of earnings growth. This optimism is also reflected in the fairly generous P/E ratio of 64.99.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Arista Networks has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Arista Networks stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
The last twelve months weren’t great for Arista Networks shares, which cost holders 4.5%, while the market was up about 3.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 70% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: Arista Networks may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.