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BRIAN DEAGON

Arista Networks: IBD Stock Of The Day Forms Bullish Chart Pattern

Arista Networks is the IBD Stock Of The Day, as ANET stock has formed a bullish chart pattern.

The provider of computer networking gear has formed a double-bottom base with a handle, a bullish chart pattern commonly formed by top stocks, alongside the venerable cup with handle. Spotting a good double bottom just may lead to rewarding gains if it shows a strong breakout in big volume.

The ANET stock pattern shows a buy point of 132.97. Shares dropped 2.7% to close at 123.03 on Friday, which proved to be a difficult day for markets overall.

At its core, the double-bottom base is shaped like the letter W. But an important distinction is that the second leg down should undercut the first, which it does in this case.

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Arista's biggest revenue growth driver has been high-end ethernet switches that speed up communications among racks of computer servers packed into data centers. Two of the company's biggest customers have been Microsoft and Facebook owner Meta Platforms.

One of its competitors is Cisco Systems.

How Arista Beat Wall Street Views

Arista reported second-quarter results on Aug. 1 that beat estimates on earnings and revenue. Arista earnings rose 59% from a year earlier to $1.08 per share, topping estimates of 92 cents.

Further, revenue grew 49% to $1.05 billion vs. forecasts for $979 million, topping the $1 billion mark for the first time.

For the third quarter, Arista said it expects revenue in a range of $1.025 billion to $1.075 billion. ANET stock analysts had predicted revenue of $996 million.

"We like Arista's long-term growth opportunity but remain on the sidelines on valuation," Oppenheimer analyst Ittai Kidron wrote in a note to clients following the earnings report.

KeyBanc Capital Markets analyst Thomas Blakely reiterated an overweight rating and price target of 170.

ANET Stock: Cloud Visibility Remains Strong

"Management commented that cloud visibility remains strong, providing comfort for the remainder of 2022," Blakely said in his note to clients.

According to IBD Stock Checkup, ANET stock has an IBD Composite Rating of 99, the highest possible. IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better.

Its Relative Strength Rating is 91. It means that ANET stock has outperformed 91% of all stocks over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.

Also keep an eye on the relative strength line, which compares a stock's price performance with that of the S&P 500. An upward-trending RS line tells you the stock is outperforming the general market. And it's a bullish sign when the line is in or near new high ground at the time of a breakout.

The relative strength line of ANET stock is near a new high.

No. 1 In Its Industry Group

Arista has the No. 1 ranking in IBD's Computer-Networking industry group. Second is Digi International. Sierra Wireless is third.

ANET stock is also on the IBD 50 list of leading growth issues.

If you're new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one key to the investment guidelines. IBD offers a broad range of growth stock lists, such as Leaderboard and SwingTrader.

Also, if you're interested in buying large-cap stocks, in these articles you'll find technical analysis of leading large caps such as ANET stock to see if they are in or near a proper buy zone

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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