Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Buy, Sell, or Hold: Universal Display

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upside outweighs its risks. Let's take a look at Universal Display (NASDAQ: OLED  ) today, and see why you might want to buy, sell, or hold it.

Founded in 1985 and based in New Jersey, Universal Display is in the business of developing and selling technologies and materials for flat panel displays and solid-state lighting, among other things. Its specialty is organic light-emitting diode technologies, and variations on it such as transparent OLED, flexible OLED, and more.

The company sports a market capitalization of about $1.1 billion. Over the past year its stock has shed some 29%, and it's down about 50% from its 52-week high.

The first thing to like about the company is the business it's in, supplying products such as smartphones, which are growing very rapidly. Universal Display itself is also growing quickly. Its revenue has grown by an annual average of 50% over the past five years and that growth rate has only gotten faster in recent years. Well, until recently, that is. Its recent third quarter was disappointing enough to cut shares down by a third.

Still, the potential is great. Universal's OLED technology is in the popular Samsung Galaxy S III smartphone, which is competing with Apple's (NASDAQ: AAPL  ) iPhone and Apple's Retina displays. It speaks well for Samsung's products that Apple has been fighting to restrict them.

The company's balance sheet is strong, with plenty of cash and little debt.

Despite Universal Display's rapid revenue growth, until recently it was unprofitable. It ended several years of being free-cash-flow negative in 2011, but over the past year, that number has reverted to being red.

Universal Display's valuation is not screaming "Bargain!" right now. Its recent price-to-earnings ratio of 119 is well above its five-year average P/E of 77 (which is itself high). On the plus side, its price-to-sales and price-to-book-value ratios are below their five-year averages. One reason the stock is down lately is that in addition to posting disappointing third-quarter results, it also lowered its near-term guidance, due to not so many OLED TVs flying off shelves. That's not a permanent problem, though, as makers such as LG Display (NYSE: LPL  ) are boosting their TV-building capacity.

Universal also holds gobs of patents, partly due to having bought 1,200 OLED-related ones from Fujifilm.

Stock dilution is another potential concern. The company's share count has grown by 41% over the past five years, which dilutes the value of each share. Ideally, the growth will screech to a halt or at least taper off in the near future. One way the company is trying to limit dilution is by buying back shares, but that's not usually smart if the company's stock isn't undervalued.

Hold (off)
Given the reasons to buy or sell Universal Display, it's not unreasonable to decide to just hold off on it. You might want to wait for it to post a few more quarters of profitability, and for it to return to being free-cash-flow positive. You might want to see OLED TVs and OLED-based lighting selling briskly.

You might also consider other companies tied to the explosive smartphone market. Vringo (UNKNOWN: VRNG.DL  ) , for example, helps people customize their phones with ringtones and other features. It has a lot of potential, but also some concerns such as rising costs and share counts. A pending legal outcome could make a big difference for the company.

Garnering much more support in our CAPS community of investors is InvenSense (NYSE: INVN  ) , specializing in gyroscopes used in motion-tracking devices such as smartphones and tablets. It's young and volatile, but growing rapidly, eying China's huge market, and offering an appealing valuation.

The verdict
I'm holding off on Universal Display for now, but I'm intrigued, too. But everyone's investment calculations are different. Do your own digging and see what you think. Universal Display may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.

Big data's time to shine
The amount of data we store every year is growing by a mind-boggling 60% annually! To make sense of this trend and pick out a winner, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts but still has plenty of room left to run. Thousands have requested access to this special free report, and now you can access it today at no cost. To get instant access to the name of this company transforming the IT industry, click here -- it's free.

Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2169045, ~/Articles/ArticleHandler.aspx, 10/26/2016 9:42:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.27 -53.76 0.00%
S&P 500 2,133.77 -9.39 -0.44%
NASD 5,283.40 -26.43 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
OLED $49.70 Down -1.02 +0.00%
Universal Display CAPS Rating: ****
AAPL $118.25 Up +0.60 +0.00%
Apple CAPS Rating: ****
INVN $7.12 Down -0.23 +0.00%
InvenSense CAPS Rating: *****
LPL $12.96 Up +0.05 +0.00%
LG Display CAPS Rating: ***
VRNG.DL $0.00 Down +0.00 +0.00%
Vringo CAPS Rating: *