Universal Display Corporation (NASDAQ:OLED) opened much lower despite beating earnings and revenue expectations. Soft guidance for FY 2018 sent the stock lower by over 14% after the market opened.
Universal Display stock has flown high and then fallen quickly as iPhone-driven sales failed to match expectations. Still, with profit and revenue growth remaining in the double digits, is now the time to buy the dip in OLED stock?
Disappointing Guidance for Universal Display Stock
Universal Display, famous for its organic light-emitting diode (OLED) technology, reported a Q4 2017 profit of 93 cents per share, eight cents per share ahead of estimates. Revenues came in at $115.9 million, $15.88 million higher than expected. Revenue also rose 55.4% year-over-year. The company also doubled the quarterly dividend to six cents per share.
For all of 2017, the company reported revenues of $335.6 million, a 69% increase over 2016 when revenues came in at $198.9 million. The company earned a net income of $2.18 per share for the year. This is more than double the earnings per share in 2016 when the company reported a diluted net income of $1.02 per share.
What caused Universal Display stock to sell off in after-hours trading was its 2018 guidance. The company estimated between $350 million and $380 million in revenue. Wall Street had been looking for consensus revenues of $397.6 million.
iPhone X Sales Are Both a Boon and a Bane for OLED
For years, OLED has furnished displays for Samsung Electronic Co Ltd (OTCMKTS:SSNNF) smartphones and tablets such as the Galaxy. The OLED stock price more than tripled in 2017 as Apple Inc. (NASDAQ:AAPL) started using OLED’s displays for the iPhone X.
However, the stock peaked in January at $209 per share. Now the stock has fallen nearly 40% in just over a month. Analysts blame disappointing iPhone X sales as the reason for the lowered revenue.
In its industry, OLED finds itself overshadowed by its better-known peer, Korea-based LG Display Co Ltd. (ADR) (NYSE:LPL). However, companies such as AU Optronics Corp (ADR) (NYSE:AUO), Applied Materials, Inc. (NASDAQ:AMAT) and others also compete in this space.
Buy Universal Display Stock on the Dip?
With both Samsung and Apple as clients, few question that Universal Display is poised for growth and better name recognition. The question remains when will it be the right time to buy OLED stock?
While many will want to buy at these levels, the stock remains pricey in comparison to the S&P 500. Even with the drop on Friday, the current price-to-earnings (PE) ratio stands at almost 65.
The company has enjoyed over 53% average profit growth over the last five years. If that were going to hold, I would be a buyer at these levels. With earnings growth expected to slow to about 23%, I’m less excited at this valuation. Still, growth prospects for OLED remain strong despite lackluster iPhone X sales.
Also, this latest drop looks like capitulation, so I could not fault an investor who takes a small position now given the drop. If the equity were to fall below $100 per share, I would then buy Universal Display stock more aggressively. But without a bottom forming, it remains anyone’s guess as to where the stock will hit bottom.
Final Thoughts on OLED Stock
The recent drop in Universal Display stock may be a sign of capitulation. The company beat expectations on both revenue and earnings. However, investors aggressively sold OLED stock as the company lowered 2018 revenue guidance.
To be sure, the cash infusion investors had expected from the iPhone X has fallen short of estimates. This realization has sent the OLED stock price falling by nearly 40% in just over a month.
Valuations remain high despite the selloff. Still, revenues and earnings are strong despite the lower revenue number. Also, tens of millions of new devices will still utilize OLED’s displays. Growth also remains such that it will likely support a somewhat higher PE in this market.
A buying opportunity for OLED stock might be forming. However, at these valuations levels, I’d wait for a solid bottom to form.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.