Why It's Fun to Own Universal Display Shares Again

It's fun to own shares of Universal Display (NASDAQ: OLED  ) again.

That's not always the case. The stock not only missed out on the general market rally of the last two years. It also missed perhaps the most exciting growth phase in the mobile industry, and ended up trading down while everything else was skyrocketing.

OLED Chart

OLED data by YCharts.

Investors and analysts have worried about Universal Display's lumpy and unpredictable revenues, about the lack of straight-up royalty payments in its supply deal with Samsung, and about the slow arrival of extremely expensive OLED TV sets.

And the company has never been wildly profitable, which drives its P/E ratios up into the nosebleed section.

OLED PE Ratio TTM Chart

OLED P/E Ratio TTM data by YCharts.

Last week's second-quarter report put some of the biggest concerns to bed. Revenue jumped 65% year over year to $49.5 million, driving GAAP earnings to $0.33 per share -- a 43% leap. Fools love strong cash flows, and Universal delivered there, too: Operating cash flows jumped 136% year over year. Free cash added up to $13.6 million over the last six months, or 28% above the GAAP income line over the same span. That's great news.

Samsung's big, lumpy licensing agreement provided $20 million on the top line. That's up from $15 million in the year-ago quarter for a 33% increase -- far below the overall top-line growth. Organic growth is always fun.

More importantly, this should not be a flash in the pan.

"We believe the market has achieved a level of sustainable commercial technology adoption that can drive strong top line growth," said CFO Sidney Rosenblatt.

Rosenblatt reported strong demand for his OLED materials, driven by several separate factors. For one, OLED screens are expanding beyond their current smartphone and tablet territories, into areas like TV screens, flexible displays, and lighting panels.

For another, Universal's particular flavor of OLED materials are improving fast thanks to the company's growing research budgets. The red emitter has driven most of Universal's sales so far, but now the company has commercial quantities of a green emitter and some other parts of the display stack as well. Green materials added "significantly" to earnings this quarter, and that's a first.

So Universal Display has more end-user customers, and they're ordering more types of OLED components than before. That should add up to solid growth.

Investors sat up and took notice. Universal Display shares soared more than 18% overnight on this report, then fell back to just 7%. But the integrity of this fantastic report started sinking in later, aided by some positive analyst comments. Share prices have now surged nearly 30% over the last week, inching closer to 52-week highs.

Long-term investors have solid gold on their hands here. Universal Display is the most successful pick in my CAPS portfolio, having beaten the S&P 500 benchmark by 200% since 2006.

Let's see what happens when large-screen TV sets start making a difference, using both red and green materials from Universal Display. That's where the real fun begins.

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Read/Post Comments (3) | Recommend This Article (6)

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  • Report this Comment On August 14, 2013, at 8:23 PM, ScottAtlanta wrote:

    Anders, Thank you and Evan Niu? for letting me know about this stock....I researched it after you Fools mentioned it and decided to buy.

    Though painful for stock holders over the past two years....I was oblivious to the pain b/c I didn't even know about the stock. When I looked at the chart --- how it flattened out and set an apparent base.....I saw this as an incredible buying opportunity. But the technology and the company sold me first....then the base in the I loaded up (as per my relatively modest means). Good thing I didnt' listen to that mainstream guy who recently labeled it as a "toxic stock" and said to dump it. He cited that same formation of a lower price base in the chart as the reason to sell...

  • Report this Comment On August 17, 2013, at 1:34 PM, crca99 wrote:

    Thanks, I need your help to follow this company.

  • Report this Comment On August 20, 2013, at 11:34 AM, Eohippus617 wrote:

    What is real interesting is that most of this revenue 90% plus is still from just the mobile screen market. Lighting still accounts for less than 2% and OLED TV's are just at the beginning. As each of these start production and then use multi color emitters and hosts this has a chance to have serveral exponential growth path opportunties.

    I think of this as just leaving the batter's box after hitting the ball- haven't even hit first base yet..

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