Important Information for Arista Networks Investors

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.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.