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Should Arista Networks Inc’s (NYSE:ANET) Recent Earnings Worry You?

Assessing Arista Networks Inc’s (NYSE:ANET) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess ANET’s recent performance announced on 30 June 2018 and evaluate these figures to its long-term trend and industry movements.

Check out our latest analysis for Arista Networks

Despite a decline, did ANET underperform the long-term trend and the industry?

ANET’s trailing twelve-month earnings (from 30 June 2018) of US$226.5m has declined by -23.1% compared to the previous year.

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Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 45.1%, indicating the rate at which ANET is growing has slowed down. Why is this? Well, let’s take a look at what’s transpiring with margins and whether the rest of the industry is facing the same headwind.

Over the last couple of years, revenue growth has fallen behind which indicates that Arista Networks’s bottom line has been driven by unsustainable cost-reductions.

Scanning growth from a sector-level, the US communications industry has been enduring some headwinds in the past year, leading to an average earnings drop of -18.5%. This is a major change, given that the industry has constantly been delivering a a robust growth of 14.7% in the previous five years. This growth is a median of profitable companies of 24 Communications companies in US including Cisco Systems, Amper and Comba Telecom Systems Holdings. This suggests that any recent headwind the industry is facing, it’s hitting Arista Networks harder than its peers.

NYSE:ANET Income Statement Export September 10th 18
NYSE:ANET Income Statement Export September 10th 18

In terms of returns from investment, Arista Networks has fallen short of achieving a 20% return on equity (ROE), recording 13.2% instead. However, its return on assets (ROA) of 7.7% exceeds the US Communications industry of 4.8%, indicating Arista Networks has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Arista Networks’s debt level, has increased over the past 3 years from 17.4% to 29.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 311% to 2.1% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. You should continue to research Arista Networks to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ANET’s future growth? Take a look at our free research report of analyst consensus for ANET’s outlook.

  2. Financial Health: Are ANET’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.