Those who invested in Arista Networks (NYSE:ANET) three years ago are up 134%

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For example, the Arista Networks, Inc. (NYSE:ANET) share price has soared 134% in the last three years. That sort of return is as solid as granite. On the other hand, we note it's down 9.0% in about a month. We note that the broader market is down 4.5% in the last month, and this may have impacted Arista Networks' share price.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Arista Networks

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Arista Networks achieved compound earnings per share growth of 15% per year. This EPS growth is lower than the 33% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Arista Networks has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

A Different Perspective

While it's never nice to take a loss, Arista Networks shareholders can take comfort that their trailing twelve month loss of 9.2% wasn't as bad as the market loss of around 20%. Longer term investors wouldn't be so upset, since they would have made 14%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Arista Networks , and understanding them should be part of your investment process.

We will like Arista Networks better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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