Let's talk about the popular Arista Networks, Inc. (NYSE:ANET). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$264 at one point, and dropping to the lows of US$207. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Arista Networks' current trading price of US$224 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Arista Networks’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Arista Networks?
Great news for investors – Arista Networks is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Arista Networks’s ratio of 22.69x is below its peer average of 38.78x, which indicates the stock is trading at a lower price compared to the Communications industry. Although, there may be another chance to buy again in the future. This is because Arista Networks’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will Arista Networks generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 25% over the next couple of years, the future seems bright for Arista Networks. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? Since ANET is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on ANET for a while, now might be the time to make a leap. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ANET. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.
It can be quite valuable to consider what analysts expect for Arista Networks from their most recent forecasts. So feel free to check out our free graph representing analyst forecasts.
If you are no longer interested in Arista Networks, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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