Critical Survey: Telefonaktiebolaget LM Ericsson (ERIC) versus Applied Optoelectronics (AAOI)

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

Profitability

This table compares Telefonaktiebolaget LM Ericsson and Applied Optoelectronics’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Telefonaktiebolaget LM Ericsson -1.99% -3.25% -1.41%
Applied Optoelectronics 21.92% 31.31% 21.96%

Analyst Recommendations

This is a summary of current recommendations and price targets for Telefonaktiebolaget LM Ericsson and Applied Optoelectronics, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Telefonaktiebolaget LM Ericsson 2 6 5 0 2.23
Applied Optoelectronics 3 1 4 2 2.50

Telefonaktiebolaget LM Ericsson presently has a consensus target price of $5.34, indicating a potential downside of 17.21%. Applied Optoelectronics has a consensus target price of $69.63, indicating a potential upside of 67.49%. Given Applied Optoelectronics’ stronger consensus rating and higher probable upside, analysts plainly believe Applied Optoelectronics is more favorable than Telefonaktiebolaget LM Ericsson.

Institutional & Insider Ownership

8.0% of Telefonaktiebolaget LM Ericsson shares are held by institutional investors. Comparatively, 81.6% of Applied Optoelectronics shares are held by institutional investors. 8.2% of Applied Optoelectronics shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Dividends

Telefonaktiebolaget LM Ericsson pays an annual dividend of $0.07 per share and has a dividend yield of 1.1%. Applied Optoelectronics does not pay a dividend. Telefonaktiebolaget LM Ericsson pays out -11.5% of its earnings in the form of a dividend.

Volatility and Risk

Telefonaktiebolaget LM Ericsson has a beta of 1.07, suggesting that its stock price is 7% more volatile than the S&P 500. Comparatively, Applied Optoelectronics has a beta of 3.06, suggesting that its stock price is 206% more volatile than the S&P 500.

Valuation & Earnings

This table compares Telefonaktiebolaget LM Ericsson and Applied Optoelectronics’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Telefonaktiebolaget LM Ericsson $26.76 billion 0.79 $910.85 million ($0.61) -10.57
Applied Optoelectronics $368.63 million 2.18 $98.06 million $4.17 9.97

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

Summary

Applied Optoelectronics beats Telefonaktiebolaget LM Ericsson on 11 of the 16 factors compared between the two stocks.

Telefonaktiebolaget LM Ericsson Company Profile

Telefonaktiebolaget LM Ericsson (Ericsson) provides infrastructure, services and software to the telecommunication industry and other sectors. The Company’s segments include Networks, IT & Cloud and Media. The Networks segment consists of two business units: Network Products and Network Services. The overall focus is on evolving and managing access networks, including the development of hardware and software for radio access and transport networks. The IT & Cloud business includes two business units: IT & Cloud Products and IT & Cloud Services. The focus in IT & Cloud is to help telecom operators and selected enterprises through the digital transformations ahead. It develops and delivers software-based solutions for television and media and combines a product portfolio that spans the television value chain, with systems integration and managed services. The portfolio includes compression, content publishing through set-top box or pure over-the-top, content delivery and analytics.

Applied Optoelectronics Company Profile

Applied Optoelectronics, Inc. is a vertically integrated provider of fiber-optic networking products, primarily for networking end markets, such as Internet data center, cable television (CATV), fiber-to-the-home (FTTH) and telecommunications (telecom). The Company designs and manufactures a range of optical communications products at varying levels of integration, from components, subassemblies and modules to turnkey equipment. To Internet-based data center operators, it supplies optical transceivers that plug into switches and servers within the data center and allow these network devices to send and receive data over fiber optic cables. The Company supplies a range of products, including lasers, transmitters and transceivers, and turnkey equipment, to the CATV market. The Company designs, manufactures and integrates its own analog and digital lasers using a combination of Metal Organic Chemical Vapor Deposition (MOCVD) and its Molecular Beam Epitaxy (MBE) fabrication process.

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