Contrasting Applied Optoelectronics (NASDAQ:AAOI) and NETGEAR (NASDAQ:NTGR)

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

Volatility and Risk

Applied Optoelectronics has a beta of 3.85, meaning that its stock price is 285% more volatile than the S&P 500. Comparatively, NETGEAR has a beta of 1.15, meaning that its stock price is 15% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent ratings for Applied Optoelectronics and NETGEAR, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Applied Optoelectronics	1	2	3	0	2.33
NETGEAR	1	1	2	0	2.25

Applied Optoelectronics currently has a consensus price target of $147.00, suggesting a potential upside of 91.56%. NETGEAR has a consensus price target of $33.50, suggesting a potential upside of 46.03%. Given Applied Optoelectronics’ stronger consensus rating and higher probable upside, analysts clearly believe Applied Optoelectronics is more favorable than NETGEAR.

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Applied Optoelectronics	$455.71 million	14.24	-$38.23 million	($0.78)	-98.38
NETGEAR	$699.62 million	0.89	-$17.92 million	($0.93)	-24.67

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Applied Optoelectronics	-9.57%	-1.98%	-1.34%
NETGEAR	-3.71%	-2.79%	-1.67%

Insider and Institutional Ownership

61.7% of Applied Optoelectronics shares are owned by institutional investors. Comparatively, 83.0% of NETGEAR shares are owned by institutional investors. 3.8% of Applied Optoelectronics shares are owned by insiders. Comparatively, 3.1% of NETGEAR shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Summary

Applied Optoelectronics beats NETGEAR on 9 of the 14 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 NETGEAR

NETGEAR, Inc. provides connectivity solutions the Americas; Europe, the Middle East, Africa; and the Asia Pacific. The company operates in two segments, Connected Home, and NETGEAR for Business. The Connected Home segment offers Wi-Fi routers and home Wi-Fi mesh systems, Wi-Fi hotspots, digital displays, broadband modems, Wi-Fi gateways, Wi-Fi range extenders, powerline adapters, and Wi-Fi network adapters; and provides value-added service offerings, including security and privacy, technical support, and parental controls. The NETGEAR for Business segment provides pro AV Solutions; pro routers; enterprise grade cloud managed or standalone access points; general purpose ethernet switches; NETGEAR Insight remote management software; and NETGEAR engage controller. It markets and sells its products through wholesale distributors, traditional and online retailers, direct market resellers, value-added resellers, and broadband service providers, as well as through its direct online store. The company was incorporated in 1996 and is headquartered in San Jose, California.