If you’ve been waiting to buy growth at a discount, Arista Networks (NYSE:ANET) is a name to put on the radar. But following ANET stock’s earnings-driven fallout, a stronger risk-adjusted purchase demands waiting for some likely holiday-inspired technical gift giving. Let me explain.
Friday was an ugly one for existing shareholders of Cisco Systems (NASDAQ:CSCO) competitor and data center switch manufacturer Arista Networks. ANET stock cratered by 24%. So, what went so wrong to warrant shares losing nearly one-quarter of their value?
By the numbers, Arista stock offered Q3 year-over-year profit growth of nearly 27.5% that topped forecasts of $2.41 by 28 cents on earnings of $2.69 per share. At the same time revenue growth of 16.17% also narrowly beat consensus views of $653.30 million with actual sales of $654.42 million. Not bad, right? Then came a conference call which proved a gift for bears.
Unexpectedly, Arista Networks slashed its guidance range to $540 million to $560 million and nearly 20% below analyst forecasts for the fourth quarter. CEO Jayshree Ullal cited softening business from a cloud titan customer which left Wall Street guessing to some degree, but decisive in its aggressive exit out of ANET stock.
With both Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) each expected to generate roughly 10% of ANET stock’s revenues in 2019, but Microsoft responsible for 27% of sales in 2018, the customer in question isn’t really a mystery. It’s also not the end all, say all for Arista stock.
Bottom line, for now the warning appears to be more of a shorter-term bump in the road tied to the industry and the customer’s own contracts than fault on the part of Arista Networks. But if you’re a contrarian-minded investor looking to buy shares when the story looks bad and others are fleeing, finding a bottom is still an elusive undertaking. It demands patience.
ANET Stock Price Monthly Chart
Obviously ANET stock’s sales warning wasn’t welcome news. Aside from the one-day plunge in shares, the price action in Arista Networks established an extreme monthly gap outside the stock’s lower Bollinger Band. To say the least and as stated above, Friday’s investors were determined in their action. It’s also the kind of action which could lead to a great investment in ANET stock — but not today.
Our recommendation is to put ANET stock on the radar for purchase at a later date. I’d also advise watching ANET’s monthly chart for any future buy decisions.
Currently and with shares wedged between their lifetime 50% and 62% support levels and showing an oversold and bullishly divergent stochastics set-up, the case for buying ANET becomes even stronger. But it’s also true a confirmed bottom in shares is still M.I.A. At the end of the day — or more aptly, at the end of the month — if zone support can continue to hold in November as stochastics trends out of oversold territory, a long ANET stock position could be gift-wrapped with confirmation of a buyable bottom as early as December.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.