Head-To-Head Review: ARM (NASDAQ:ARM) & Applied Optoelectronics (NASDAQ:AAOI)

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

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%

Risk & Volatility

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 4.56, suggesting that its share price is 356% more volatile than the S&P 500.

Insider & Institutional Ownership

61.7% of Applied Optoelectronics shares are owned by institutional investors. Comparatively, 7.5% of ARM shares are owned by institutional investors. 5.4% of Applied Optoelectronics shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Earnings and Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Applied Optoelectronics	$209.55 million	4.89	-$56.05 million	($2.06)	-10.61
ARM	$3.69 billion	37.36	$306.00 million	$0.76	173.28

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.

Analyst Recommendations

This is a summary of recent ratings 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 26.26%. ARM has a consensus target price of $165.23, suggesting a potential upside of 25.47%. Given Applied Optoelectronics’ higher possible upside, analysts clearly believe Applied Optoelectronics is more favorable than ARM.

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.