Arista Networks' (NYSE:ANET) 50% CAGR outpaced the company's earnings growth over the same five-year period

For many, the main point of investing in the stock market is to achieve spectacular returns. 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 663% 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. Also pleasing for shareholders was the 30% gain in the last three months. We love happy stories like this one. The company should be really proud of that performance!

The past week has proven to be lucrative for Arista Networks investors, so let's see if fundamentals drove the company's five-year performance.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Arista Networks achieved compound earnings per share (EPS) growth of 30% per year. This EPS growth is slower than the share price growth of 50% per year, over the same period. 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.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how Arista Networks has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Arista Networks stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Arista Networks shareholders have received returns of 15% over twelve months, which isn't far from the general market return. We should note here that the five-year TSR is more impressive, at 50% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Arista Networks a stock worth watching. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Arista Networks is showing 1 warning sign in our investment analysis , you should know about...

Of course Arista Networks may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.