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AAOI vs. PXLW: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors interested in stocks from the Electronics - Semiconductors sector have probably already heard of Applied Optoelectronics (AAOI) and Pixelworks (PXLW). But which of these two stocks presents investors with the better value opportunity right now? 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.

Currently, Applied Optoelectronics has a Zacks Rank of #2 (Buy), while Pixelworks has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that AAOI is likely seeing its earnings outlook improve to a greater extent. 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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

AAOI currently has a forward P/E ratio of 11.92, while PXLW has a forward P/E of 87.54. We also note that AAOI has a PEG ratio of 0.79. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. PXLW currently has a PEG ratio of 4.38.

Another notable valuation metric for AAOI is its P/B ratio of 0.96. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, PXLW has a P/B of 2.58.

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

AAOI has seen stronger estimate revision activity and sports more attractive valuation metrics than PXLW, so it seems like value investors will conclude that AAOI is the superior option right now.

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