This one’s going to sound a little familiar, but we’ll give it a quick once-over for the folks who haven’t been aboard the good ship Gumshoe for long. The Motley Fool is pitching their flagship Stock Advisor newsletter with a pitch about a company that they think might become a “hall of fame” investment like their past recommendations of Amazon, Netflix, NVIDIA, etc… the ad is signed by Eric Bleeker, here’s a little excerpt:

“I’m writing to you today about a company that I hope will one day become the next Motley Fool “hall-of-fame” stock.

“This small, California-based company is pioneering breakthrough technology that is enabling companies to move vast quantities of data over the Internet at lightning speeds.

“And as the world has become more and more reliant on the Internet for everyday needs, this company has seen its revenue explode. The intense demand for this technology has helped the company race from zero to $1 billion in sales in just eight years.

“In fact, many of technology’s biggest names – including Microsoft, Alphabet, and Amazon.com – are now loyal, paying customers of this company.”

And it has a female CEO and the Fool bought shares for their own account, which might be sparking your memory cells at this moment:

“Heck, we believe in this company so much, we even invited their CEO to Motley Fool Headquarters to personally tell her how much we believe in her company and why we are staking $523,111 of The Motley Fool’s own money on their stock.”

What else? Bleeker says it’s a stock they’ve picked a bunch of times, not just a “double down”:

“… for the past several months, we’ve been urging members of The Motley Fool investment community to buy shares before they potentially skyrocket.

“Actually, we’ve already issued 12 separate ‘buy’ recommendations across the various investment research services here at The Motley Fool.”

Know what word lawyers love? Several. “Over the past several months” implies something fairly recent and current, but it doesn’t actually mean that — “Several” is defined in the law dictionaries as meaning “separate”, and the common definitions are a vague “more than a few” or “two or three but not many.” If you’re writing ad copy, using indefinite words makes your lawyers happy.

In reality, the Motley Fool has been teasing this particular stock for, well, several years, since the first time I saw them teasing the stock in the fall of 2017, and I’d say the time during which it was most aggressively touted by the Fool was in 2018 and 2019.

And the stock has done pretty well since the first teaser pitch we covered — the stock is Arista Networks (ANET), and this is how it has performed since the fall of 2017, a recent surge in the shares (thanks in part to Facebook’s reported plans for a infrastructure spending spree) has pushed it above the S&P 500’s return since then:

ANET data by YCharts

Of course, a chart can tell any story you want it to — if you bought at a different time, say, mid-2019, you might have meaningfully trailed the market averages (and that’s not using an extreme price, just a comparison to a time when ANET shares were a little more elevated):

Here’s how Arista Networks describes itself, in case the name is new to you, their primary competitor is giant Cisco Systems (CSCO), but there are also smaller companies like Juniper Networks (JNPR) in the picture:

“Arista Networks pioneered software-driven, cognitive cloud networking for large-scale datacenter and campus environments. Arista’s award-winning platforms redefine and deliver availability, agility, automation, analytics and security. At the core of Arista’s platform is the Extensible Operating System (EOS™), a ground-breaking network operating system with single-image consistency across hardware platforms, and a modern open core architecture enabling in-service upgrades and application extensibility. Arista has shipped more than fifty million cloud networking ports worldwide with CloudVision™ and EOS. The Arista team is comprised of experienced management and engineering talent from leading networking companies. Arista designs revolutionary products in California and delivers them worldwide through distribution partners, systems integrators and resellers with a strong dedication to partner and customer success.”

What’s going to happen next? Well, we’ll find out pretty soon — they’re reporting after the market close, with a conference call at 4:15 EST this afternoon. The stock has risen pretty nicely in recent weeks, and if you look at the long view it’s been a decent investment and is probably at a rational price now — over the past five years, revenue growth has tallied up at more than 20% a year, earnings growth at more than 35% a year, and the shares trade at a trailing PE of about 45 and a forward PE of about 34. Fairly reasonable, at least in the context of the current market… at least, “fairly reasonable” if you assume that analysts are a little gun-shy about growth after getting too excited a couple years ago, the average analyst forecast is for 12.5% earnings growth over the next five years, and they’ll have to do better than that to earn a PE of 40.

The company remains quite dependent on their largest customers, the free-spending “mega cloud” companies, we know that Microsoft has been disclosed as a “More than 10% of revenue” customer every year since 2018 but Facebook has often also been cited as a major customer, and the capital spending for data center equipment in that sector can be lumpy, which is what has led to the waves of euphoria and disappointment with Arista Networks in the past, but it does seem like spending is pretty robust in that area these days.

Analysts are expecting them to report solid earnings growth ($2.71 is the EPS estimate at the moment), and the analysts have generally been pretty accurate with this one… the stock usually “surprises” by 5-10% or so, nice and orderly. What really moves the shares, though, is the commentary — the stock has cratered several times in recent years because of pessimistic forecasts, at times when their largest customers are surprising Arista by reining in their ordering for a period of time, or pausing data center construction or upgrades. That’s what has mostly caused the stock to falter over the past few years, and that inconsistency led to me getting stopped out of my position a while back (I had sold all my shares by the time I covered the last Motley Fool “Double Down” pitch about Arista, which was over a year ago). What will happen this time around? I dunno, but the table does seem to be set for more data center spending by just about everyone, and Arista has been saying all the right things this year… we’ll learn a little more after the market close today.

Have any thoughts on Arista Networks that you’d like to share? Think they’re on a sustainable path now, or will they keep being buffeted by up-and-down order flow from Microsoft and the other biggies? Will Cisco stop losing market share to Arista, or will Arista? Let us know with a comment below…

Disclosure: Of the companies mentioned above, I own shares of Amazon.com and Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.