Stock is off 20% from the recent high. This is the highest decline of all my stocks except for SHOP which is off 21%.
The only news is a downgrade from one analyst. He may or may not be a good analyst but this is just one person’s opinion.
The company said that they expect 25% revenue growth this year (I think that was the number), but they also said that they can’t predict beyond 1-2 quarters. They are clearly being conservative.
I believe that the long term growth for ANET remains in tact.
Q1 earnings results come out in about 3 weeks. If the revenue growth comes in strong then they will probably need to up their guidance. I think this is likely.
I think it is likely that ANET stock will soon revert to recent 52-week and all-time high which is a 25% upside from here.
Based on the above, I chose to trim a position that’s a bit too large and move it into ANET. I considered moving into SHOP but decided to wait on that for now.
NTNX 17.3%
ANET 14.8%
SHOP 11.8%
After rechecking, I only moved 1% from NTNX to ANET. I may decide to add some to SHOP but I don’t think I want to reduce NTNX unless we see it retrace to the high 50s.
I also added to ANET again this morning. It is my largest position but it is one of my highest conviction stocks, with NVDA. The $7.06 estimate, in my opinion, is way to low. I will be surprised if they don’t do over $8.00 in EPS this year.
Maybe partially. But the price isn’t the only factor because I think I know the reason for the drop: one analyst downgrade. There is also a general tech stock decline today which doesn’t help the price today. Now, I could be wrong: there may be something currently still unknown that may come to light in the next few days. But I try to use the info that I have available and analyze the situation and make a decision. It’s really just a relative small adjustment to my portfolio.
I think it’s important to determine how believable this analyst is, Ben Bollin from Cleveland research, that just did the downgrade. I don’t want to just blow him off because of confirmation bias.
So far I’m not able to find his prior rating on ANET. It says downgrade, but Tipranks shows this as his first rating of ANET. How do you downgrade something if this is your first rating, unless he didn’t go public with his last rating.
He only has a few rating on Tipranks, all holds or sells.
I think it’s important to determine how believable this analyst is, Ben Bollin from Cleveland research, that just did the downgrade. I don’t want to just blow him off because of confirmation bias.
I consider this irrelevant. Focus on that he has an opinion: an opinion on the 2018 earnings, an opinion on the value of the company. It’s an opinion and not about being believable or not. Other analysts have different opinions. I have a different. I value my opinion the most while the others are just noise.
Based on this analyst’s opinion, I see no reason to change my opinion as there were no new facts. The only fact that I could find is that the price is now 10% lower.
I think I know the reason for the drop: one analyst downgrade. one obscure analyst . I doubt if that is the real reason. The AM order imbalance suggests to me that one big holder wanted out , and he/she wanted out in a hurry… Who knows why.
I am keeping my ANET but not adding more since we may be at a information disadvantage here.
When I say believable, I am using Ray Dalio’s definition, not whether he is lying or not. If this analyst had a history of being correct many times in the past on his calls I would give his opinion more consideration( more believable), especially if he was correct on ANET in the past.
On the other hand, if he has no history of being right and might be a short seller, I’m giving his opinion no consideration (no believability).
So far I haven’t found any evidence of him being correct in the past so he hasn’t changed my very positive outlook on ANET.
The AM order imbalance suggests to me that one big holder wanted out , and he/she wanted out in a hurry… Who knows why. I am keeping my ANET but not adding more since we may be at a information disadvantage here.
It is possible that there is an unknown reason: someone knows something that others do not. Id this is the case, then would it be something temporary, something of little relevance, or something that could affect the ANET’s long term prospects. We do not know.
On the other hand, if there is nothing else and one large investor wanted out then there could be several reasons for them wanting out. Did they see another better opportunity? Did they see something wrong with ANET? The big disadvantage of a big holder is that they cannot move in or out quickly without really moving the price. If this is what happened (a big holder selling a lot or all of their shares) then one would expect the share price to move back up (unless some unknown news comes out).
Personally, I think that my bet to add was a good bet. It may or may not work out but I think it was a good bet given what I know.
I’m sorry. It’s true what they say: “We’re all products of our experience”.
When I read all these posts about ANET, I can’t help but think back to my CSCO experience.
I was truly lucky to have invested in CSCO for, literally, pennies. Oh, yeah, the Dotcom Boom was all that. I rode CSCO to fantastic gains. Life was good. Back then, I routinely communicated with a number of investors reveling in their dotcom profits. Good times. I came to a point when I felt CSCO’s share price had raced beyond any reasonable financial metrics. Shares were selling at approx. $75 at that point. I announced I was selling my entire position. The reaction? Shock, disdain, mockery, outrage. I was told I was nuts for selling such a fantastic growth company at such a low price.
Fast forward 18 years. CSCO fell to ~ $10.00/share shortly thereafter and wandered in the wilderness for years thereafter. CSCO sells for $43+ today.
Why do I talk about CSCO on an ANET thread? Because they serve the same market. Yeppers, both provide routers/switches deemed necessary to make the networks work. Turns out CSCO was NEVER worth its lofty valuation when the market repriced. Lotsa folks lost lotsa money.
That’s pretty much how I feel about ANET today. It’s a good company. I bought in early, held tight through the litigation kerfuffle, then sold when I felt the share price raced above the financials/reality. That’s pretty much where I stand today. ANET? Great company. Solid sector. WAAAAY overpriced.
Based on this analyst’s opinion, I see no reason to change my opinion as there were no new facts.
I tend to ignore analyst’s opinions in general. They used to play an important role in my investment decisions.
The question I always ask myself when I see a big swing in the stock price of a company I hold is “What’s changed with respect to the business of the company?” I ask this question irrespective of the direction of the price swing. One would expect that there would be a reasonable answer to this question, but surprisingly often the answer is “Nothing.”
One can only wonder how some folks become “analysts”. Short attacks are usually easy to identify due to a voluminous report consisting of minor issues blown out of proportion combined with total irrelevancies dressed up to seem like important issues. That’s not to say that all short attacks are invalid, but a lot of them are. It’s also informative to see who is behind the attack. If their track record consists of a short term decline in stock price with a subsequent recovery because the performance of the attacked business renders the supposed issues without merit, then the credibility of the attacker is, at the very least, questionable.
I am long ANET and comfortable with it being among my largest holding. I intend to take no action based on Mr. Bolin’s report and the current drop in the stock price.
I was going to make a top-of-my-head guess that if we were back in the dot-com bubble, that ANET would be selling for at least twice what it’s selling for today. But instead I’ll just say that it seems likely that its share price would have been noticeably higher then. Jim Cramer would be waving his arms wildly and telling you to double their own conservative estimates.
I came to a point when I felt CSCO’s share price had raced beyond any reasonable financial metrics. Shares were selling at approx. $75 at that point. I announced I was selling my entire position. … Fast forward 18 years. CSCO fell to ~ $10.00/share shortly thereafter and wandered in the wilderness for years thereafter. CSCO sells for $43+ today. … That’s pretty much how I feel about ANET today. It’s a good company. I bought in early, held tight through the litigation kerfuffle, then sold when I felt the share price raced above the financials/reality.
Putnid,
If you’ll notice, you’re comparing a company valued at 500 billion dollars 18 years ago (CSCO) to a company valued at 20 billion dollars today (ANET). I think ANET still has many good years ahead of them.
Also, the degree to which ANET is over (or under) valued today in not even in the same world as Cisco’s drastic overvaluation in the dotcom bubble. ANET’s PE is over 40 – that’s not cheap. 18 years ago CSCO’s PE was well over 200.
The only legitimate criticism from the analyst downgrade is if Microsoft, FaceBook, et al., are foregoing EOS in favor of their own home brewed software. Otherwise, Arista is primarily in the more complex core areas of the networks and least subject to being disrupted by the white boxes from Asia as the power is in the software, not the hardware. Arista spends 10% of R&D on hardware and 90% off software, and I would wager most of the R&D on hardware is to insure the software runs on it optimally.
Nothing new here.
The only linkage would be if Arista’s CEO’s guidance of 25% or so for the remainder of the year following Q1 is not because of more difficult comparables, but because of losing marketshare to internal software projects.
We know AT&T has such a software project they built. But AT&T admitted to not having sufficient brain power to finish the project. They therefore open sourced it and are relying upon third parties and companies like Red Hat to finish it and maintain it and keep the product cycle.
Sounds like not saving a heck of a lot of money that way.
Earnings are May 3, we shall see what Arista is projecting for Q2 and Q3 and if there is any issue with this.
At the last earnings call Arista so no change in the competitive environment. But since they only have 1 or 2 quarters window in the future, that comment does not apply more than 1 or 2 quarters into the future.
If there was a white box problem for Arista, the above article from 2016, in which the analyst was completely wrong would be it. Microsoft running SONIC in lieu of Arista.
Perhaps the tipping point was 2018 and not 2017.
Not that this is anything new as Arista was already supporting sonic with portions of EOS:
Arista is offering containerized EOS components like EOS BGP to run on top of SONiC. The SONiC community now has easy access to Arista’s rich software suite of EOS.
If you’ll notice, you’re comparing a company valued at 500 billion dollars 18 years ago (CSCO) to a company valued at 20 billion dollars today (ANET). I think ANET still has many good years ahead of them.
Also, the degree to which ANET is over (or under) valued today in not even in the same world as Cisco’s drastic overvaluation in the dotcom bubble. ANET’s PE is over 40 – that’s not cheap. 18 years ago CSCO’s PE was well over 200.
Absolutely right, Bear. At its peak, it was world’s largest company by market cap! It almost lost 90% of its value after the crash. Arista might go down, it might not be a good investment, but does anybody here see it losing more than 80% of its value? the dot-com bubble was worlds apart from where we are now.
Note: That does not mean we will not soon experience a correction or that Arista will even do well from here as an investment, just that these two things are not comparable.
The problem with valuing ANET is the lumpiness of historical figures - but they are all splendidly there - and low predictability. It’s tech. after all (and lightly garnished with the hot and variable spice Litigate anticipens).
Deutsche also downgraded 3/19 and reduced their target to 195. Morningstar also sees it as far overvalued but my criteria are different. Having a stab at averaging figures right across the board (down) and limiting growth rate to 20 (I know I know but I’m conservative) I come up with the current price (244) being open to investment.
I urge people to do this yourself. You absolutely cannot rely on the valuations of others, owing to the incentives involved.
As Munger said (something like) ‘All my life I’ve known about the importance of incentives and all my life I’ve under-estimated them.’