Why Arista Networks Stock Jumped Nearly 17% in August
Shares of Arista Networks (NYSE: ANET) jumped 16.9% in August, according to data from S&P Global Market Intelligence. That brings the cloud networking solutions provider's one-year return to 53.8% through Friday, Sept. 7.
For some context, the S&P 500 index returned 3.3% last month and has returned 18.8% over the past year.
A main catalyst for Arista stock's upward move last month was S&P Dow Jones Indices' announcement that Arista would be added to the S&P 500 index effective before the market opened on Aug. 28. (GCP Inc. is leaving the index because it's being acquired by Brookfield Property Partners LP.) Shares gained 9.2% on Aug. 24 following this announcement.
It's typical for stocks to get a boost when it's announced that they're going to be added to the S&P 500 index (or another major index, for that matter). That's because such an debut will increase demand for the stock, as mutual funds and exchange-traded funds that track the index will have to buy shares of the company once it's added to the index.
Arista released second-quarter earnings on Aug. 2. However, this event appears to have had little net impact on the stock. Shares declined 5.3% on Aug. 3, probably because some investors were concerned about decelerating revenue growth. However, after digesting the earnings, the market reversed course and sent shares to a closing gain of 5.4% on the next trading day, Aug. 6.
In Q2, Arista's revenue jumped 28% to $519.8 million. (That represented a deceleration from the first quarter's 41% year-over-year growth.) Earnings per share (EPS) soared 43% to $1.86, and EPS adjusted for one-time factors surged 44% to $1.93. Wall Street was expecting revenue growth of 26% and adjusted EPS of $1.70, so Arista beat on both the top and bottom lines.
For the third quarter, Arista guided for:
- Revenue between $540 and $552 million, which translates to growth of about 23% to 26% year over year.
- Adjusted gross margin between 63% to 65%. For context, the year-ago period's adjusted gross margin was 64.4%.
- Adjusted operating margin of approximately 32% to 34%.
Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool has a disclosure policy.