We've been asking ourselves recently if the market has placed a fair valuation on Arista Networks. Let's dive into some of the fundamental values of this large-cap Telecommunications company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Arista Networks's Earnings and Assets:
Arista Networks, Inc. develops, markets, and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, Arista Networks has a trailing 12 month P/E ratio of 34.6 and a P/B ratio of 10.32.
Arista Networks's PEG ratio is 3.19, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Exceptionally Strong Balance Sheet:
| 2018-02-20 | 2019-02-15 | 2020-02-14 | 2021-02-19 | 2022-02-15 | 2023-02-14 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $1,646 | $2,151 | $2,411 | $2,318 | $2,948 | $4,381 |
| Gross Margins | 64.0% | 64.0% | 64.0% | 64.0% | 64.0% | 61.0% |
| Operating Margins | 28% | 32% | 33% | 30% | 31% | 35% |
| Net Margins | 26.0% | 15.0% | 36.0% | 27.0% | 28.0% | 31.0% |
| Net Income (MM) | $423 | $328 | $860 | $635 | $841 | $1,352 |
| Earnings Per Share | $1.34 | $1.01 | $2.66 | $2.0 | $2.63 | $4.27 |
| EPS Growth | n/a | -24.63% | 163.37% | -24.81% | 31.5% | 62.36% |
| Diluted Shares (MM) | 316 | 323 | 324 | 318 | 320 | 316 |
| Free Cash Flow (MM) | $647 | $527 | $979 | $750 | $1,081 | $537 |
| Capital Expenditures (MM) | -$15 | -$24 | -$16 | -$15 | -$65 | -$45 |
| Net Current Assets (MM) | n/a | n/a | n/a | n/a | n/a | n/a |
Arista Networks has strong margins with a stable trend and exceptional EPS growth. Additionally, the company's financial statements display an excellent current ratio and wider gross margins than its peer group. Furthermore, Arista Networks has weak revenue growth and a flat capital expenditure trend and irregular cash flows.
