The recent market downturn has hit some stocks worse than others, and Arista Networks (NYSE:ANET) has been among the hardest hit. The cloud networking solutions provider is coming off several quarters of solid growth, but the recent market malaise has knocked the company down nearly 25% on no company-specific news -- leaving the stock flat for the year -- even in the face of solid earnings.

Arista will have another chance to impress shareholders when the company reports the financial results of its third quarter after the market close on Nov. 1. Let's look at its recent results and what may be in store for the upcoming earnings report.

Cloud shape superimposed over computer circuitry.

Image source: Getty Images.

Solid across the board

For the second quarter, Arista reported revenue of $519.8 million, up 28% year over year and 10% sequentially and topping both analyst expectations and the high end of the company's forecast. The company achieved a $2 billion revenue run rate for the first time on the strength of the quarter. Adjusted gross margins of 64.5% exceeded management's guidance and inched up from 64.4% in the prior-year quarter. Adjusted net income of $155.7 million grew 47% year over year, generating adjusted earnings per share of $1.93, also easily topping expectations and resulting in record profitability.

Arista produced growth in both of its key segments, with services revenue jumping 46% year over year and now accounting for 14.4% of revenue as the result of higher renewals. Product sales climbed by 26% and still provide the vast majority of Arista's sales.

Arista also announced that it would buy Mojo Networks, the inventor of Cognitive WiFi and a leader in cloud-managed wireless networking -- marking Arista's first acquisition. The addition of Mojo to its portfolio will significantly advance Arista's Cognitive Cloud Networking for the Campus, a network architecture designed to address challenges as companies transition to Internet of Things-ready campuses. Arista said the transaction will close in the third quarter and will be accretive to earnings in 2019.

What the quarter could hold

For the third quarter, Arista is forecasting revenue in the range of $540 million to $552 million, which would represent year-over-year growth of between 23% and 26%. The company expects adjusted gross margins of about 64% at the midpoint of its guidance and operating margins of 33%, both give or take 1%.

Analysts' consensus estimates are calling for revenue of $548.78 million, growth of 25.4% year over year, and earnings per share $1.84, an increase of 13.6% compared to the prior-year quarter. 

Ita Brennan, Arista's chief financial officer, on the conference call in August said, "The operations team is currently working to understand and attempt to mitigate any potential gross margin headwind related to the trade tariff announcement." The ongoing trade tensions could be a wild card in the quarter, but Arista "would ultimately look to pass on any un-remediated costs to customers."

Given the long runway ahead, investors should ignore the short-term market noise and stay focused on the long-term cloud computing and data center trends that are Arista's bread and butter. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.