Applied Optoelectronics, Inc. (AAOI) is better stock pick than L Brands, Inc. (LB)

The shares of L Brands, Inc. have decreased by more than -39.92% this year alone. The shares recently went up by 0.03% or $0.01 and now trades at $36.18. The shares of Applied Optoelectronics, Inc. (NASDAQ:AAOI), has slumped by -20.17% year to date as of 04/13/2018. The shares currently trade at $30.19 and have been able to report a change of 25.32% over the past one week.

The stock of L Brands, Inc. and Applied Optoelectronics, Inc. were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 8.41% versus 5.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that LB will grow it’s earning at a 8.41% annual rate in the next 5 years. This is in contrast to AAOI which will have a positive growth at a 5.00% annual rate. This means that the higher growth rate of LB implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. LB has an EBITDA margin of 18.12%, this implies that the underlying business of AAOI is more profitable. The ROI of LB is 25.90% while that of AAOI is 18.60%. These figures suggest that LB ventures generate a higher ROI than that of AAOI.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, LB’s free cash flow per share is a positive 7.8.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for LB is 1.60 and that of AAOI is 3.20. This implies that it is easier for LB to cover its immediate obligations over the next 12 months than AAOI.


LB currently trades at a forward P/E of 10.84, and a P/S of 0.80 while AAOI trades at a forward P/E of 10.11, a P/B of 1.76, and a P/S of 1.51. This means that looking at the earnings, book values and sales basis, LB is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of LB is currently at a -25.14% to its one-year price target of 48.33. Looking at its rival pricing, AAOI is at a -18.78% relative to its price target of 37.17.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), LB is given a 2.70 while 2.40 placed for AAOI. This means that analysts are more bullish on the outlook for LB stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for LB is 4.19 while that of AAOI is just 9.87. This means that analysts are more bullish on the forecast for LB stock.


The stock of Applied Optoelectronics, Inc. defeats that of L Brands, Inc. when the two are compared, with AAOI taking 4 out of the total factors that were been considered. AAOI happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, AAOI is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AAOI is better on when it is viewed on short interest.

Previous ArticleNext Article

Related Post

Sysco Corporation (SYY) and United Natural Foods, ... Sysco Corporation (NYSE:SYY) shares are up more than 7.06% this year and recently increased 0.47% or $0.28 to settle at $59.56. United Natural Foods, ...
How Does the Fundamental Picture Look for Hewlett ... Hewlett Packard Enterprise Company (NYSE:HPE) is in the highlights and many would want to know whether now might be a good time for it to present much...
Valero Energy Corporation (VLO) vs. Delek US Holdi... Valero Energy Corporation (NYSE:VLO) shares are up more than 22.41% this year and recently decreased -0.64% or -$0.54 to settle at $83.63. Delek US Ho...
Applied Materials, Inc. (AMAT) vs. Entegris, Inc. ... Applied Materials, Inc. (NASDAQ:AMAT) shares are up more than 9.39% this year and recently increased 2.42% or $1.32 to settle at $55.92. Entegris, Inc...
Synchrony Financial: Does This Move Make Any Sense... Synchrony Financial (NYSE:SYF) seems to be forming a pattern of major movements, providing only some crumbs of outlook for market participants trying ...