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AAOI or PXLW: Which Is the Better Value Stock Right Now?

Zacks Equity Research

Investors with an interest in Electronics - Semiconductors stocks have likely encountered both Applied Optoelectronics (AAOI) and Pixelworks (PXLW). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Applied Optoelectronics has a Zacks Rank of #2 (Buy), while Pixelworks has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that AAOI likely has seen a stronger improvement to its earnings outlook than PXLW has recently. But this is just one piece of the puzzle for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

AAOI currently has a forward P/E ratio of 12.78, while PXLW has a forward P/E of 88.64. We also note that AAOI has a PEG ratio of 0.85. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. PXLW currently has a PEG ratio of 4.43.

Another notable valuation metric for AAOI is its P/B ratio of 1.02. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, PXLW has a P/B of 2.61.

These are just a few of the metrics contributing to AAOI's Value grade of A and PXLW's Value grade of D.

AAOI sticks out from PXLW in both our Zacks Rank and Style Scores models, so value investors will likely feel that AAOI is the better option right now.

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