December 20, 2024
Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Arista Networks Inc ( NYSE:ANET ) share price is up a whopping 749% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. It's also up 16% in about a month. It really delights us to see such great share price performance for investors.
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.
Check out our latest analysis for Arista Networks
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, Arista Networks managed to grow its earnings per share at 27% a year. This EPS growth is lower than the 53% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 51.56.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Arista Networks has grown profits over the years, but the future is more important for shareholders. This free interactive report on Arista Networks' balance sheet strength is a great place to start, if you want to investigate the stock further.
It's nice to see that Arista Networks shareholders have received a total shareholder return of 85% over the last year. That's better than the annualised return of 53% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Arista Networks in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
