Some years ago, I might have assumed that Arista Networks (ANET 0.23%) had something to do with Arista Records, the music label famous for stars such as Whitney Houston and Aretha Franklin. But no -- Arista Networks is a specialist in networking (think routers, network switches, etc.) and cloud computing, among other things. Those are vital products and services in our modern days, and as you might expect, Arista stock has been a terrific performer.
How much would you have now if you'd invested, say, $10,000 in Arista Networks a decade ago? A lot. Specifically, your stake would be worth around $293,000. That's a total gain of some 2,800% and an average annual gain of about 40%.
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That should impress you. If it doesn't, compare those results to those of the SPDR S&P 500 exchange-traded fund (ETF). Over the same decade, the S&P 500 index ETF gained a total of 223%, averaging 12.5% annually. And that's really quite good, as the S&P 500 index of 500 of America's biggest companies has averaged annual gains of close to 10% over many decades.
With a recent forward-looking price-to-earnings (P/E) ratio of 49, well above its five-year average of 30, Arista's stock seems overvalued at recent levels. So think twice before investing in Arista right now -- though do consider it. You might add it to a watch list, for example, or buy into it incrementally over time.
Arista's growth prospects look good, as it offers things needed by cloud computing services and data centers -- which are proliferating in part due to the growth of artificial intelligence (AI). With a recent market value of $150 billion, it's somewhat smaller than fellow networking specialist Cisco Systems (market value: $240 billion), but it has been growing faster, with third-quarter revenue up 20% year over year vs. Cisco's 6% loss in a similar period.
