ARM (NASDAQ:ARM) and Applied Optoelectronics (NASDAQ:AAOI) Financial Contrast

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

Volatility and Risk

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

Analyst Ratings

This is a summary of recent recommendations and price targets for Applied Optoelectronics and ARM, as provided by MarketBeat.com.

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

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

Valuation and Earnings

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

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

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 and Insider Ownership

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

Profitability

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

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

Summary

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

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.

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.