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Why Arista Networks Stock Dropped 11.1% in September

Beth McKenna, The Motley Fool

What happened

Arista Networks (NYSE: ANET) stock fell 11.1% in September, according to data from S&P Global Market Intelligence. Shares of the cloud networking solutions provider have gained 11% in 2018 through Oct. 3.

For some context, the S&P 500 index returned 0.6% last month and 11% so far this year, putting it in a dead heat with Arista in 2018.

Man standing on a downward-pointing red arrow on a graph background.

Image source: Getty Images.

So what

Arista Networks stock's decline in September was likely a simple giving back of the gains it made in August after S&P Dow Jones Indices announced that Arista would be added to the S&P 500 index effective prior to the market open on Aug. 28. Shares popped 9.2% on the first trading day following this revelation and climbed 16.9% during the full month of August.

This give-back theory is supported by the facts that the stock's decline came early in September soon after its late August run-up and that there appears to be no significant news released from or about the company during September.

^SPXTR Chart

Data by YCharts.

As I noted last month, it's "typical for stocks to get a boost when it's announced that they're going to be added to the S&P 500 index (or another major index, for that matter). That's because such a debut will increase demand for the stock, as mutual funds and exchange-traded funds that track the index will have to buy shares of the company once it's added to the index." These boosts are often temporary.

Now what

There's no need to change whatever investing course you've chosen on Arista because of September's happenings.

Investors will be getting material news relatively soon. While Arista hasn't yet announced a date, it should be releasing its third-quarter earnings in late October or early November. For the quarter, the company has guided for revenue growth of 23% to 26% year over year, adjusted gross margin of 63% to 65%, and adjusted operating margin of 32% to 34%.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool has a disclosure policy.