Following better-than-expected third-quarter results, Arista Networks' (NYSE: ANET) management anticipated double-digit revenue growth next year. In addition, the highly profitable cloud networking specialist has built a rock-solid balance sheet. So does that mean Arista stock is a buy? Beyond the cloud After several quarters of uncertainties because of the volatile quarterly spendings of a few giant cloud customers, Arista's long-term outlook looks brighter. Granted, Q3 revenue dropped 7.5% year over year to $605.4 million, but it exceeded the forecast range of $570 million to $590 million. Fourth-quarter revenue should also grow by 13.1% year over year, based on the midpoint of management's guidance range of $615 million to $635 million. These positive short-term results are due to the improved demand for the company's solutions across the entire portfolio. In particular, CFO Ita Brennan highlighted increased win rates with enterprises and service providers (telecommunication providers). Looking forward, Brennan also indicated during the earnings call that she felt comfortable with analysts' projection of 13% to 14% revenue growth in 2021. And she expects the top line to keep growing beyond next year. Indeed, Arista's expanding portfolio should support that positive trend. Image source: Getty Images. The cloud market Arista addresses with its networking offerings should grow at a compound annual growth rate (CAGR) of 17.5% by 2025, according to the research outfit ResearchAndMarkets. As an illustration, the cloud titans Facebook and Microsoft recently indicated sustained investments in their data centers. That bodes well for Arista, as Facebook and Microsoft represented 17% and 23% of revenue, respectively, in 2019. For instance, Facebook announced last week that it will increase its capital expenditure by 37.5% in 2021 (at the midpoint of its guidance range) to support investments in its data centers -- including networking infrastructure. Besides, Arista estimates its total addressable market (TAM) will increase from $23 billion in 2021 to $33 billion in 2025, as it will be expanding beyond its core cloud networking offerings with networking software solutions and services. For example, the company developed campus (enterprises local networks) networking solutions that leverage the Wi-Fi and cybersecurity capabilities it recently acquired. Given Arista's success in disrupting cloud networking over the last several years, it's realistic to think the company could capture a part of the extra TAM its new adjacent networking areas represent. A fair valuation In addition to its attractive potential, Arista has been generating strong profits as it has been addressing giant cloud customers, which require reduced sales and marketing expenses. As an illustration, Q3 non-GAAP (adjusted) operating margin reached 38.2%, down from 39.4% in the prior-year period. Granted, management expects operating margins to decrease to 35% over the long term, as the company will be dealing with smaller customers by expanding into the campus area, but that long-term goal remains healthy. Arista also maintained a rock-solid balance sheet. With $2.8 billion of cash, cash equivalent, and marketable securities at the end of Q3 (and no debt), it can face a potentially prolonged recession or proceed with acquisitions. However, Arista's high valuation ratios already price strong performance going forward. Based on the midpoint of guidance, revenue should increase to $2.6 billion in 2021, which corresponds to 7.3 times the company's market cap of $19.0 billion. And the market values the company at an elevated price-to-earnings (P/E) ratio of 26.9. Thus, Arista stock isn't a buy for me right now, but it remains an interesting tech stock to consider during the next potential market crash. 10 stocks we like better than Arista NetworksWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Arista Networks wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of October 20, 2020 Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Herve Blandin has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks, Facebook, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.Source