Arista Networks (ANET) stock is taking a tumble on Friday, closing lower by about about 10.4% to $278.41 after a disappointing quarterly report.
However, the stock finished well off its session lows, bringing some investors to wonder whether the initial selloff was an overreaction. After all, the company beat on earnings and it's its guidance for next quarter that's causing this drumming.
Earnings of $2.31 per share came in 24 cents ahead of expectations. Revenue of $595.4 million grew 26% year-over-year, but was only in-line with estimates. In-line sales results for a high-growth, high-valuation company isn't ideal, especially after the stock rallied into the report.
But the price action can get extra dicey on poor guidance, which is exactly what we have here. Management expects sales of $600 million to $610 million next quarter, well below Wall Street estimates of $639.3 million.
What does this mean for the stock?
Trading Arista Networks Stock
The cut in guidance apparently comes from one large customer. This is a temporary pain for Arista Networks, but does not alter the long-term secular wave that it has been riding. Incidentally, Cisco Systems (CSCO) is down almost 1% on Friday and pulling back into the 50-day moving average on Arista's earnings results.
Is that a reasonable reaction? We'll find out in the coming days. As it pertains to Arista Networks stock, though, there is a more attractive buying opportunity at lower prices. Arista Networks stock rallied almost 75% from its December lows to its highs a few weeks ago. In a way, Friday's 15% selloff doesn't seem all that bad, given the guidance and this monster run.
For now, the 50-week moving average is helping to buoy ANET stock. Should that fail to hold, though -- say as investors lock in a profit over the next few days, broader indices come under pressure over the next few weeks, etc. -- there should be some strong support down in the $238 to $242 range.
This level was resistance in late-2017, support for the first half of 2018 and resistance again in the second half of 2018. Further, the 100-week moving average sits down in this area, as does the 61.8% Fibonacci retracement for the 52-week range.
It's no guarantee that Arista Networks stock drops down to the ~$240 level. If it does, though, growth investors may want to consider a long position in the name.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.