With a daily gain of 4.06%, a three-month gain of 14.03%, and an Earnings Per Share (EPS) of 6, investors might wonder if Arista Networks Inc (ANET, Financial) is modestly overvalued. To provide a comprehensive answer, we delve into a detailed valuation analysis. Read on to uncover the intrinsic worth of Arista Networks and whether it presents a suitable investment opportunity.
Company Introduction
Arista Networks Inc (ANET, Financial) is a leading networking equipment provider specializing in Ethernet switches and software for data centers. Its flagship product, the extensible operating system (EOS), is renowned for its versatility across all devices. Since its inception in 2004, Arista Networks has consistently captured market share, catering to high-speed applications with major clients like Microsoft and Meta Platforms. A majority of its sales come from North America. With a current stock price of $224.03 and a market cap of $69.70 billion, the question arises: does the stock price reflect the company's fair value?
Understanding the GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock. This calculation is based on historical trading multiples, a GuruFocus adjustment factor from past performance and growth, and future business performance projections. The GF Value Line, depicted on our summary page, suggests the fair trading value for the stock. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, indicating a potential decrease in future returns. Conversely, a price well below the line could signal higher future returns.
At the current price of $224.03 per share, Arista Networks (ANET, Financial) seems modestly overvalued according to the GF Value. This suggests that the long-term return on its stock might be lower than the company's business growth.
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Financial Strength Analysis
Before investing, assessing a company's financial strength is crucial. Companies with robust financial health reduce the risk of permanent loss. Arista Networks boasts a cash-to-debt ratio of 92.74, outperforming 91.79% of its peers in the Hardware industry. With a financial strength rating of 8 out of 10, Arista Networks is financially robust.
Profitability and Growth
Consistent profitability is a hallmark of a lower-risk investment. Arista Networks has maintained profitability for the past decade, with a notable operating margin of 37.29%, ranking higher than 98.94% of companies in the Hardware industry. Its profitability rank stands at 10 out of 10. Growth is equally important for valuation; Arista Networks' average annual revenue growth is 22.9%, outpacing 88.14% of its industry counterparts. The three-year average EBITDA growth rate is 24.7%, which is also impressive.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into profitability relative to capital investment. Arista Networks' ROIC is an impressive 52.43, significantly higher than its WACC of 11.6, indicating efficient capital utilization.
Conclusion
In conclusion, Arista Networks (ANET, Financial) appears to be modestly overvalued. Nonetheless, the company's financial condition is strong, and its profitability and growth prospects are robust. For a deeper understanding of Arista Networks' financials, investors can 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.
