$8 a share in earning in 2018. Nothing magical about it. Even if Arista simply earns $1.71 a share for each of the first 3 quarters this year (unlikely as margins keep growing as does revenue), and then has 40% earnings growth in Q4, you still get $7.53 in earnings per share (unadjusted for stock dilution, which won’t be major). Getting to $8 a share is not a real high hurdle.
Street earning estimates have to go up as the high estimate was at $7.20 and a real outlier, and that was based on Q4 earnings being estimated at $1.42 per share, not $1.71 a share.
Based upon the Street estimate of $1.42 a share, using the same methodology as I used to derive $7.20 a share, you would only get $6.25 a share in earnings. A substantial difference.
As for the sell off, these two articles give more clarity in regard to the concerns:
Primarily to do with the continuing workarounds on the patent front. This was suppose to be dealt with by the quarter, but will continue into next year. CEO says it will not affect the company the entire year, and that AI will drive demand for high speed equipment and software that Arista sells.
Uncertainty is the worst thing you can have in Wall Street. And yes, uncertainty we have as I cannot say what Arista will do. Is there a material secular slow down for Arista despite supposedly in the prime of their life with 100gb and 400 gb? If so, that is reason to sell. Take your profits and go.
If not, then it is reason to continue to hold or buy more.
The problem is we do not know which, and the above two articles is about the best that we have to figure it out. Which really is, is management just saying, “we are a normal company now, you cannot expect more from us and we feel good about it,” or are they just saying, “this too will pass, but we ethically cannot say more until w actually no more.”