Arista Networks Inc (ANET, Financial) recently experienced a daily loss of -1.4%, yet it has seen a 3-month gain of 9.77%. With an Earnings Per Share (EPS) of $6, investors are keen to understand if the stock is fairly valued. This article delves into the valuation analysis of Arista Networks, offering insights into whether its current market price reflects its intrinsic value.
Company Introduction
Arista Networks is a leading provider of networking equipment, specializing in Ethernet switches and software for data centers. Its flagship product, the extensible operating system (EOS), offers a unified software image across all devices. Founded in 2004, Arista Networks has consistently captured market share, focusing on high-speed applications and boasting significant clients like Microsoft and Meta Platforms. With the majority of its sales originating from North America, Arista Networks has established a strong market presence.
Comparing Arista Networks' current stock price of $216.64 with the GF Value of $201.18 offers a glimpse into its valuation status. The GF Value estimates the fair market value of a stock, considering historical trading multiples, company performance, and future business projections. This comparison sets the stage for a deeper valuation analysis.
Summarize GF Value
The GF Value is an exclusive metric that determines the intrinsic value of a stock based on historical trading multiples, an adjustment factor reflecting past returns and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, suggesting a potential decrease in future returns. Conversely, if the stock price is below the GF Value Line, it could indicate a higher likelihood of positive future returns.
With a market cap of $67.40 billion, Arista Networks (ANET, Financial) is currently considered fairly valued according to the GF Value. This suggests that the stock's long-term return may align closely with the company's business growth rate.
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Financial Strength
Before investing, assessing a company's financial strength is crucial to mitigate the risk of permanent loss. Arista Networks' cash-to-debt ratio of 92.74 outperforms 91.73% of companies in the Hardware industry. With an overall financial strength score of 8 out of 10, Arista Networks showcases robust financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, presents less risk. Arista Networks has maintained profitability for the past decade, with a remarkable operating margin of 37.29%, ranking higher than 98.9% of its industry peers. Its profitability score stands at a solid 10 out of 10.
Company growth is a vital valuation factor, as it is closely correlated with long-term stock performance. Arista Networks' 3-year average revenue growth rate surpasses 88.07% of companies in the Hardware industry. The company's 3-year average EBITDA growth rate is 24.7%, outperforming 71.57% of its industry counterparts.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) offers insight into its profitability. Arista Networks' ROIC of 52.43 is significantly higher than its WACC of 12.72, indicating effective value creation for shareholders.
Conclusion
Arista Networks (ANET, Financial) appears to be fairly valued, with strong financials and robust profitability. Ranking favorably in growth among its industry peers, Arista Networks is a compelling consideration for investors. For a detailed look at Arista Networks' financials, explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
