What: Shares of display technology specialst LG Display (LPL -0.25%) fell 11.6% in June, according to S&P Capital IQ data. The malady lasted all month long, dragging fellow display-panel builders AU Optronics (AUO 4.68%) and Sharp (SHCAY 0.78%) along for the ride. Year to date, LG Display shares have now plunged 27% lower.
So what: LG Display saw two analyst upgrades and no downgrades in June, smartphone sales are booming as usual, and the company is about to launch a brand new line of high-quality TV sets based on OLED technologies and 4K video resolutions. So why the gloomy market action?
First, unit prices on display panels are in freefall according to market researcher DisplaySearch. Moreover, TV makers have built up significant reserves of unsold display components, which may slow down orders from LG Display, Sharp, AU Optronics, and others in the coming quarters.
Second, smartphones are selling like hotcakes today, but analyst house Sanford Bernstein foresees a rapid slowdown in that market's sales growth during the next couple of years. That would be bad news for LG Display. Mobile screens accounted for 25% of the company's revenue in the recently reported first quarter, up from 17% in the year-ago period. Keep in mind that overall sales rose 26% between these two reports, and you'll get a sense of the mobile market's importance to LG Display.
Now what: I wish I could tell you where the smartphone and TV markets are going next, but my crystal ball is unfortunately in the shop for an annual touch-up. Do keep an eye on these two industries when companies like DisplaySearch update their market reports. In general, LG Display should be fine with the low-growth part of the smartphone growth S-curve, as long as high-end 4K TVs pick up the slack.
That being said, the nascent 4K video market may, in fact, not be able to make up for slowing growth elsewhere. LG Display's stock chart in 2015 certainly seems designed for a long-term slowdown.
Today, LG Display shares can be bought for just six times trailing earnings. The stock is selling for less than book value, meaning that investors think that liquidating the company's assets might be worth more than running the business. In other words, you're looking at a deep, deep discount price here.
Risk takers could bet on a rebound, chiefly powered by 4K television sets and the potential for high smartphone demand in developing markets like Africa, inner Asia, and Darkest Peru. Honestly, the attractive share prices probably do outweigh LG Display's market risks.
But to each, his own. That's why they play the game, right?
Personally, I may like LG Display's position, but still prefer taking another step down the supply chain to own OLED technologists. On that level, producers should continue to get paid handsomely even if finished-panel prices keep dropping.
