Critical Review: Applied Optoelectronics (NASDAQ:AAOI) & ARM (NASDAQ:ARM)

ARM (NASDAQ:ARM) and Applied Optoelectronics (NASDAQ:AAOI) are both computer and technology companies, but which is the superior business? We will compare the two businesses based on the strength of their dividends, valuation, risk, profitability, analyst recommendations, earnings and institutional ownership.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for ARM and Applied Optoelectronics, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
ARM	2	5	19	1	2.70
Applied Optoelectronics	1	1	3	0	2.40

ARM currently has a consensus price target of $165.23, indicating a potential upside of 32.41%. Applied Optoelectronics has a consensus price target of $27.60, indicating a potential upside of 52.65%. Given Applied Optoelectronics’ higher possible upside, analysts plainly believe Applied Optoelectronics is more favorable than ARM.

Volatility & Risk

ARM has a beta of 4.57, suggesting that its stock price is 357% more volatile than the S&P 500. Comparatively, Applied Optoelectronics has a beta of 2.36, suggesting that its stock price is 136% more volatile than the S&P 500.

Profitability

This table compares ARM and Applied Optoelectronics’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
ARM	21.82%	11.94%	8.62%
Applied Optoelectronics	-38.61%	-22.36%	-12.08%

Earnings and Valuation

This table compares ARM and Applied Optoelectronics”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
ARM	$3.69 billion	35.39	$306.00 million	$0.76	164.18
Applied Optoelectronics	$249.37 million	3.40	-$56.05 million	($4.28)	-4.22

ARM has higher revenue and earnings than Applied Optoelectronics. Applied Optoelectronics is trading at a lower price-to-earnings ratio than ARM, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

7.5% of ARM shares are held by institutional investors. Comparatively, 61.7% of Applied Optoelectronics shares are held by institutional investors. 5.4% of Applied Optoelectronics shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Summary

ARM beats Applied Optoelectronics on 12 of the 15 factors compared between the two stocks.

About ARM

Arm Holdings Plc engages in the licensing, marketing, research, and development of microprocessors, systems IP, graphics processing units, physical IP and associated systems IP, software, and tools. It operates through the following geographical segments: United Kingdom, United States, and Other Countries. The company was founded on November 12, 1990 and is headquartered in Cambridge, the United Kingdom.

About Applied Optoelectronics

Applied Optoelectronics, Inc. designs, manufactures, and sells fiber-optic networking products in the United States, Taiwan, and China. It offers optical modules, optical filters, lasers, laser components, subassemblies, transmitters and transceivers, turn-key equipment, headend, node, distribution equipment, and amplifiers. The company sells its products to internet data center operators, cable television, telecom equipment manufacturers, fiber-to-the-home, and internet service providers through its direct and indirect sales channels. Applied Optoelectronics, Inc. was incorporated in 1997 and is headquartered in Sugar Land, Texas.