For the past 12 months, the shares of Universal Display Corporation (NASDAQ:OLED) have gained about 19%. But it’s a good bet many investors still lost quite a bit of money. The reason? During the year, Universal Display stock had a range of $81 to $209.
Some of the drivers for the volatility included the optimism about Apple Inc.’s (NASDAQ:AAPL) iPhone X, which included OLED screens. However, when the company announced a delay, there were jitters with Universal Display stock. Then there were the rumors that the iPhone X was languishing.
But all this was not the end of the bad news. In mid-March, Bloomberg.com put out a story headlined “Apple Is Secretly Developing Its Own Screens for the First Time.”
In light of all this, it should be no surprise that Universal Dispaly stock has been a rollercoaster.
But what now? Might there be a value opportunity with OLED? Or is the risk still too high?
To answer these questions, let’s first get some background on the company. Universal Display Corporation, which was founded in 1994, is a pioneer of OLED (organic light emitting diode) systems. The technology allows for the manufacture of screens and lighting that is thin, lightweight and energy efficient. Because of this, OLED systems are becoming more ubiquitous for flat screens, smartphones and even virtual reality (VR).
As for Universal Display, the company generates revenues by licensing its technology — such as to Samsung Electronics Co Ltd (OTCMKTS:SSNLF) and Sony Corp (ADR)(NYSE:SNE) — and selling materials. Keep in mind that it has a portfolio of more than 4,500 patents.
For the most part, growth has been robust. For the full year, revenues spiked by 69% to $335.6 million and net income came to $103.9 million, up from $55.8 million. Materials revenues jumped by 102% to $200.3 million and licensing was up by 32% to $126.5 million.
However, it does look like the growth ramp will decelerate. Note that the guidance for 2018 was on the light side, with revenues projected at $350 million to $380 million. But Wall Street was looking for $398.2 million.
Yet it looks like this will be temporary. On the earnings call, CEO Sidney Rosenblatt noted that the growth would accelerate in 2019.
Apple and Universal Display Stock
The Bloomberg.com report indicates that AAPL is developing MicroLED screens. This is different from OLED displays because there are different chemicals involved.
For now, it looks like development is in the early stages. And if things work out, the MicroLED screens should be thinner and more power efficient.
Yet the potential impact on OLED stock will not be immediate. According to the Bloomberg.com piece, the production is likely not to happen until a “few years.” The technology is exceedingly complex and requires sophisticated manufacturing systems.
This is why some analysts are not too worried. For example, Gabelli analyst Hendi Susanto has put a buy rating on Universal Display stock as there is “more upside potential than downside risks.”
Bottom Line on Universal Display Stock
Based on research from IHS, the market for OLED panels is likely to continue to grow. The forecast is for the number of panels to go from 7.8 million in 2018 to 17.7 million by 2022. The growth will not just be primarily from smartphones either. OLED technology is also becoming critical for wearables and TVs.
Something else: OLED systems are also likely to replace more LED devices because of the lower costs and improved benefits. In other words, this should be another key driver for long-term growth.
And finally, OLED stock is definitely much more attractive now, with the forward price-to-earnings ratio only 24X. All in all, this is reasonable for a company that has a large IP footprint in a critical piece of technology.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.