A gain of 18.92% in 2018 for shares of Arista Networks, Inc. (ANET) likely could not have happened without strong institutional accumulation. Arista Networks shares have been performing very well this year even after a very solid 2017 return (+142.72%), which in our opinion supports a bullish undertone for the stock. Taking a look at how the shares have been trading over the past year, the gains seen by Arista Networks have shown share prices increasing alongside volume increases. With activity like that, it should come as no surprise that the stock has trended higher over that period.
As cloud networking gains in popularity, Arista should continue to post solid growth for years to come. Not only that, one of the biggest factors used to identify strong stocks for the long term is to look simply at supply and demand – and Arista Networks stock has clearly been in demand. By focusing our efforts in looking for companies with great fundamentals alongside bullish institutional activity, we have found that this can uncover great performing stocks. (See also: Cisco's Slump Good for Arista, Other Rivals.)
In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is by measuring potential institutional accumulation. In 2018, Arista Networks logged seven of these rare signals, with the first bullish signal occurring on Jan. 8. This is on top of the 31 rare signals that Arista Networks stock fired off in 2017. We want to see bullish activity in the shares alongside solid fundamentals, as this indicates that demand for the stock should increase.
In the chart below, Arista Networks' price gains over the year are accompanied by increasing accumulation. Shares recently broke above the $270 level:
MAP's process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
[Learn to incorporate additional indicators and data points in your analysis of stock charts in the Technical Analysis course on the Investopedia Academy.]
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Arista Networks are:
Year-to-date (YTD) outperformance vs. market: +16.16% vs. SPDR S&P 500 ETF (SPY)
YTD outperformance vs. sector: +7.5% vs. Technology Select Sector SPDR ETF (XLK)
Bullish potential accumulation signals
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Arista Networks has solid earnings and sales growth rates:
One-year sales growth rate (+45.79%)
Three-year sales growth rate (+41.33%)
One-year EPS growth rate (+17%)
Arista Networks checks the box on strong technicals and fundamentals, while showing bullish institutional momentum the past year. We believe that the current level for the shares is in position for further upside. Arista Networks shares have been powering higher for the past year, and with multiple unusual institutional activity signals, the stock could be setting up for an additional move to the upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
Arista Networks stock represents a potential buying opportunity for the long-term investor. Given the solid earnings growth, sales growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth portfolio. (For additional reading, check out: 8 Stocks to Thrive as 2018 Cloud Spending Soars.)
To learn more about MAP's institutional signals, please visit our "About Us" page.
Disclosure: The author holds no position in Arista Networks shares at the time of publication.
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