Stock Analysis on Net

Arista Networks Inc. (NYSE:ANET)

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Arista Networks Inc. common stock.


Rates of Return

Arista Networks Inc., monthly rates of return

Microsoft Excel
Arista Networks Inc. (ANET) Standard & Poor’s 500 (S&P 500)
t Date PriceANET,t1 DividendANET,t1 RANET,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $53.70 2,704.10
1. Feb 28, 2019 $71.31 32.79% 2,784.49 2.97%
2. Mar 31, 2019 $78.61 10.24% 2,834.40 1.79%
3. Apr 30, 2019 $78.07 -0.69% 2,945.83 3.93%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 $219.71 9.65% 4,567.80 8.92%
59. Dec 31, 2023 $235.51 7.19% 4,769.83 4.42%
Average (R): 3.28% 1.11%
Standard deviation: 12.47% 5.31%
Arista Networks Inc. (ANET) Standard & Poor’s 500 (S&P 500)
t Date PriceANET,t1 DividendANET,t1 RANET,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $53.70 2,704.10
1. Feb 28, 2019 $71.31 32.79% 2,784.49 2.97%
2. Mar 31, 2019 $78.61 10.24% 2,834.40 1.79%
3. Apr 30, 2019 $78.07 -0.69% 2,945.83 3.93%
4. May 31, 2019 $61.15 -21.67% 2,752.06 -6.58%
5. Jun 30, 2019 $64.90 6.13% 2,941.76 6.89%
6. Jul 31, 2019 $68.36 5.33% 2,980.38 1.31%
7. Aug 31, 2019 $56.65 -17.13% 2,926.46 -1.81%
8. Sep 30, 2019 $59.73 5.44% 2,976.74 1.72%
9. Oct 31, 2019 $61.14 2.36% 3,037.56 2.04%
10. Nov 30, 2019 $48.78 -20.22% 3,140.98 3.40%
11. Dec 31, 2019 $50.85 4.24% 3,230.78 2.86%
12. Jan 31, 2020 $55.83 9.79% 3,225.52 -0.16%
13. Feb 29, 2020 $48.28 -13.52% 2,954.22 -8.41%
14. Mar 31, 2020 $50.64 4.89% 2,584.59 -12.51%
15. Apr 30, 2020 $54.83 8.27% 2,912.43 12.68%
16. May 31, 2020 $58.37 6.46% 3,044.31 4.53%
17. Jun 30, 2020 $52.51 -10.04% 3,100.29 1.84%
18. Jul 31, 2020 $64.94 23.67% 3,271.12 5.51%
19. Aug 31, 2020 $55.86 -13.98% 3,500.31 7.01%
20. Sep 30, 2020 $51.73 -7.39% 3,363.00 -3.92%
21. Oct 31, 2020 $52.22 0.95% 3,269.96 -2.77%
22. Nov 30, 2020 $67.68 29.61% 3,621.63 10.75%
23. Dec 31, 2020 $72.64 7.33% 3,756.07 3.71%
24. Jan 31, 2021 $76.89 5.85% 3,714.24 -1.11%
25. Feb 28, 2021 $69.96 -9.01% 3,811.15 2.61%
26. Mar 31, 2021 $75.47 7.88% 3,972.89 4.24%
27. Apr 30, 2021 $78.79 4.40% 4,181.17 5.24%
28. May 31, 2021 $84.85 7.69% 4,204.11 0.55%
29. Jun 30, 2021 $90.58 6.75% 4,297.50 2.22%
30. Jul 31, 2021 $95.10 4.99% 4,395.26 2.27%
31. Aug 31, 2021 $92.38 -2.86% 4,522.68 2.90%
32. Sep 30, 2021 $85.91 -7.00% 4,307.54 -4.76%
33. Oct 31, 2021 $102.42 19.22% 4,605.38 6.91%
34. Nov 30, 2021 $124.06 21.13% 4,567.00 -0.83%
35. Dec 31, 2021 $143.75 15.87% 4,766.18 4.36%
36. Jan 31, 2022 $124.31 -13.52% 4,515.55 -5.26%
37. Feb 28, 2022 $122.73 -1.27% 4,373.94 -3.14%
38. Mar 31, 2022 $138.98 13.24% 4,530.41 3.58%
39. Apr 30, 2022 $115.57 -16.84% 4,131.93 -8.80%
40. May 31, 2022 $102.28 -11.50% 4,132.15 0.01%
41. Jun 30, 2022 $93.74 -8.35% 3,785.38 -8.39%
42. Jul 31, 2022 $116.63 24.42% 4,130.29 9.11%
43. Aug 31, 2022 $119.88 2.79% 3,955.00 -4.24%
44. Sep 30, 2022 $112.89 -5.83% 3,585.62 -9.34%
45. Oct 31, 2022 $120.86 7.06% 3,871.98 7.99%
46. Nov 30, 2022 $139.30 15.26% 4,080.11 5.38%
47. Dec 31, 2022 $121.35 -12.89% 3,839.50 -5.90%
48. Jan 31, 2023 $126.02 3.85% 4,076.60 6.18%
49. Feb 28, 2023 $138.70 10.06% 3,970.15 -2.61%
50. Mar 31, 2023 $167.86 21.02% 4,109.31 3.51%
51. Apr 30, 2023 $160.16 -4.59% 4,169.48 1.46%
52. May 31, 2023 $166.34 3.86% 4,179.83 0.25%
53. Jun 30, 2023 $162.06 -2.57% 4,376.86 4.71%
54. Jul 31, 2023 $155.09 -4.30% 4,588.96 4.85%
55. Aug 31, 2023 $195.23 25.88% 4,507.66 -1.77%
56. Sep 30, 2023 $183.93 -5.79% 4,288.05 -4.87%
57. Oct 31, 2023 $200.37 8.94% 4,193.80 -2.20%
58. Nov 30, 2023 $219.71 9.65% 4,567.80 8.92%
59. Dec 31, 2023 $235.51 7.19% 4,769.83 4.42%
Average (R): 3.28% 1.11%
Standard deviation: 12.47% 5.31%

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1 Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of ANET during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Arista Networks Inc., calculation of variance and covariance of returns

Microsoft Excel
t Date RANET,t RS&P 500,t (RANET,tRANET)2 (RS&P 500,tRS&P 500)2 (RANET,tRANET)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 32.79% 2.97% 871.03 3.49 55.10
2. Mar 31, 2019 10.24% 1.79% 48.40 0.47 4.78
3. Apr 30, 2019 -0.69% 3.93% 15.74 7.98 -11.21
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 9.65% 8.92% 40.60 61.03 49.78
59. Dec 31, 2023 7.19% 4.42% 15.30 11.00 12.97
Total (Σ): 9,022.94 1,634.30 1,850.30
t Date RANET,t RS&P 500,t (RANET,tRANET)2 (RS&P 500,tRS&P 500)2 (RANET,tRANET)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 32.79% 2.97% 871.03 3.49 55.10
2. Mar 31, 2019 10.24% 1.79% 48.40 0.47 4.78
3. Apr 30, 2019 -0.69% 3.93% 15.74 7.98 -11.21
4. May 31, 2019 -21.67% -6.58% 622.65 59.04 191.73
5. Jun 30, 2019 6.13% 6.89% 8.14 33.49 16.51
6. Jul 31, 2019 5.33% 1.31% 4.21 0.04 0.42
7. Aug 31, 2019 -17.13% -1.81% 416.57 8.50 59.50
8. Sep 30, 2019 5.44% 1.72% 4.65 0.37 1.32
9. Oct 31, 2019 2.36% 2.04% 0.85 0.88 -0.86
10. Nov 30, 2019 -20.22% 3.40% 552.06 5.28 -54.01
11. Dec 31, 2019 4.24% 2.86% 0.93 3.07 1.69
12. Jan 31, 2020 9.79% -0.16% 42.43 1.61 -8.26
13. Feb 29, 2020 -13.52% -8.41% 282.35 90.57 159.91
14. Mar 31, 2020 4.89% -12.51% 2.59 185.44 -21.90
15. Apr 30, 2020 8.27% 12.68% 24.94 134.06 57.82
16. May 31, 2020 6.46% 4.53% 10.09 11.71 10.87
17. Jun 30, 2020 -10.04% 1.84% 177.41 0.54 -9.76
18. Jul 31, 2020 23.67% 5.51% 415.82 19.40 89.81
19. Aug 31, 2020 -13.98% 7.01% 297.98 34.82 -101.86
20. Sep 30, 2020 -7.39% -3.92% 113.92 25.29 53.67
21. Oct 31, 2020 0.95% -2.77% 5.44 15.00 9.03
22. Nov 30, 2020 29.61% 10.75% 693.03 93.10 254.01
23. Dec 31, 2020 7.33% 3.71% 16.39 6.79 10.55
24. Jan 31, 2021 5.85% -1.11% 6.61 4.93 -5.71
25. Feb 28, 2021 -9.01% 2.61% 151.12 2.26 -18.48
26. Mar 31, 2021 7.88% 4.24% 21.12 9.85 14.42
27. Apr 30, 2021 4.40% 5.24% 1.25 17.11 4.63
28. May 31, 2021 7.69% 0.55% 19.46 0.31 -2.46
29. Jun 30, 2021 6.75% 2.22% 12.06 1.24 3.87
30. Jul 31, 2021 4.99% 2.27% 2.92 1.37 2.00
31. Aug 31, 2021 -2.86% 2.90% 37.70 3.22 -11.01
32. Sep 30, 2021 -7.00% -4.76% 105.76 34.37 60.29
33. Oct 31, 2021 19.22% 6.91% 254.01 33.74 92.57
34. Nov 30, 2021 21.13% -0.83% 318.57 3.76 -34.61
35. Dec 31, 2021 15.87% 4.36% 158.54 10.60 40.99
36. Jan 31, 2022 -13.52% -5.26% 282.36 40.51 106.94
37. Feb 28, 2022 -1.27% -3.14% 20.71 17.99 19.31
38. Mar 31, 2022 13.24% 3.58% 99.21 6.11 24.62
39. Apr 30, 2022 -16.84% -8.80% 404.98 98.04 199.26
40. May 31, 2022 -11.50% 0.01% 218.44 1.21 16.27
41. Jun 30, 2022 -8.35% -8.39% 135.25 90.21 110.46
42. Jul 31, 2022 24.42% 9.11% 446.84 64.09 169.23
43. Aug 31, 2022 2.79% -4.24% 0.24 28.62 2.64
44. Sep 30, 2022 -5.83% -9.34% 83.01 109.11 95.17
45. Oct 31, 2022 7.06% 7.99% 14.29 47.34 26.01
46. Nov 30, 2022 15.26% 5.38% 143.45 18.23 51.14
47. Dec 31, 2022 -12.89% -5.90% 261.34 49.04 113.21
48. Jan 31, 2023 3.85% 6.18% 0.32 25.70 2.88
49. Feb 28, 2023 10.06% -2.61% 45.99 13.82 -25.21
50. Mar 31, 2023 21.02% 3.51% 314.84 5.76 42.57
51. Apr 30, 2023 -4.59% 1.46% 61.89 0.13 -2.82
52. May 31, 2023 3.86% 0.25% 0.33 0.74 -0.50
53. Jun 30, 2023 -2.57% 4.71% 34.26 13.02 -21.12
54. Jul 31, 2023 -4.30% 4.85% 57.47 13.99 -28.35
55. Aug 31, 2023 25.88% -1.77% 510.84 8.28 -65.04
56. Sep 30, 2023 -5.79% -4.87% 82.23 35.73 54.21
57. Oct 31, 2023 8.94% -2.20% 32.01 10.92 -18.69
58. Nov 30, 2023 9.65% 8.92% 40.60 61.03 49.78
59. Dec 31, 2023 7.19% 4.42% 15.30 11.00 12.97
Total (Σ): 9,022.94 1,634.30 1,850.30

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VarianceANET = Σ(RANET,tRANET)2 ÷ (59 – 1)
= 9,022.94 ÷ (59 – 1)
= 155.57

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

CovarianceANET, S&P 500 = Σ(RANET,tRANET)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 1,850.30 ÷ (59 – 1)
= 31.90


Systematic Risk (β) Estimation

Microsoft Excel
VarianceANET 155.57
VarianceS&P 500 28.18
CovarianceANET, S&P 500 31.90
Correlation coefficientANET, S&P 5001 0.48
βANET2 1.13
αANET3 2.03%

Calculations

1 Correlation coefficientANET, S&P 500
= CovarianceANET, S&P 500 ÷ (Standard deviationANET × Standard deviationS&P 500)
= 31.90 ÷ (12.47% × 5.31%)
= 0.48

2 βANET
= CovarianceANET, S&P 500 ÷ VarianceS&P 500
= 31.90 ÷ 28.18
= 1.13

3 αANET
= AverageANET – βANET × AverageS&P 500
= 3.28%1.13 × 1.11%
= 2.03%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk (β) of Arista Networks Inc. common stock βANET 1.13
 
Expected rate of return on Arista Networks Inc. common stock3 E(RANET) 14.99%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 E(RANET) = RF + βANET [E(RM) – RF]
= 4.65% + 1.13 [13.79%4.65%]
= 14.99%