Head to Head Contrast: ARM (NASDAQ:ARM) vs. Applied Optoelectronics (NASDAQ:AAOI)

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

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Applied Optoelectronics and ARM, as reported by MarketBeat.

	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 currently has a consensus price target of $27.60, suggesting a potential upside of 55.76%. ARM has a consensus price target of $165.23, suggesting a potential upside of 36.44%. Given Applied Optoelectronics’ higher probable upside, analysts plainly believe Applied Optoelectronics is more favorable than ARM.

Volatility & Risk

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

Earnings & Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Applied Optoelectronics	$249.37 million	3.33	-$56.05 million	($4.28)	-4.14
ARM	$3.69 billion	34.35	$306.00 million	$0.76	159.34

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

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 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.